Bankruptcy is something that is justifiably feared by many as it carries a bad reputation to the offender and to an extent, their loved ones. Many are unaware of the consequences of failing to manage debts. If debts are left overdue for months, it will turn into bad debt. In addition to that, the COVID-19 pandemic has left many businesses severely affected, leaving incomes lost and employees retrenched. Before we get further, let us first understand what bankruptcy in Malaysia means and what needs to be done in order to be free from a bankruptcy charge.
What Is Bankruptcy?
According to the Malaysian Department of Insolvency (MdI), it refers to a process where a debtor will be declared bankrupt pursuant to a court order on the creditor’s petition or the debtor’s petition. The Malaysian Department of Insolvency (MdI) is the government agency that is entrusted with cases of individual bankruptcy and company wind down incidents, among others.
3 criterias for an individual to be declared a bankrupt in Malaysia:
Unable to repay the debt of no less than RM50,000;
Possess an outstanding debt of more than six (6) months;
Having resided in Malaysia for at least a year
An individual can also be declared bankrupt without their knowledge when:
Legal documents are sent to an address no longer in use;
The bankruptcy charge is served through substituted service;
The individual does not show up for court proceedings;
The individual does not receive nor respond to legal documents that have been sent to them.
There are 2 methods in which a bankruptcy court order can be granted:
By Creditor’s Petition: A bankruptcy petition can be presented by the creditor to the debtor for a debt amounting to over RM50,000.
By Debtor’s Petition: An individual can also voluntarily apply for or declare a bankruptcy status to protect themselves from creditors when they know they have debts that they cannot solve. There is no minimum amount for declaring oneself as bankrupt. After this petition has been presented, it cannot be withdrawn unless with a court order.
Once an individual is declared bankrupt, all aspects regarding their financial procedures are placed under the responsibility of the Malaysian Department of Insolvency (MdI).
Malaysians can check their bankruptcy status on the e-Insolvensi portal.
What Happens After Being Declared Bankrupt?
1. Placed under the supervision of the Director General of Insolvency (KPI)
The Director General will seize all the bankrupt’s assets and use them to repay the remaining bad debts.
2. Travel ban
The bankrupt cannot travel overseas unless with written permission from the Director General or court.
Bank accounts will be frozen and any withdrawals will be blocked. A bankrupt is also not allowed to spend more than RM1,000 on a credit card or borrow more than RM1,000 from any creditor.
All assets are seized by the Director General and will be used for debt repayment.
A bankrupt individual is not able to work certain professional jobs, such as lawyer, surveyor, accountant and doctor. They are also unable to be a company director, own a business, or hold any degree of ownership of a business.
4 Ways to Be Discharged from Bankruptcy
It is understandable to feel doomed when faced with a bankruptcy charge. The good news is, there are actions that you can take to solve the problem.
1. Seek professional help
Do not hesitate to ask for help when faced with mounting debt. There are certified and professional agencies you can go to for specifically this purpose.
One of them is Agensi Kaunseling dan Pengurusan Kredit (AKPK). This is an agency established under the jurisdiction of Bank Negara Malaysia (BNM) to provide free financial consultation services.
Among the services they offer are financial counselling and advice, debt management programmes, and financial literacy programmes.
2. Consult your bank or creditor
You are always welcome to negotiate with your creditors and banks. They are trained and experienced in knowing what needs to be done in order to assist their clients’ situations e.g. restructuring loans, reconsidering loan terms, etc..
The incidence of non-performing loans (NPLs) can also be reduced, and that is one of banks’ main objectives. Try to be open about your situation so that the best mutually agreed consensus can be reached.
3. Reconsider your assets and financial commitments
If you have a number of assets, perhaps putting one of them on sale can help you solve your debts and loans. It is also important to know the proper techniques in settling debts. Learn these useful strategies to settle your bad debt.
4. Understand the monthly repayments
The repayment instalment still needs to be paid on a monthly basis. If you encounter any problem on this, you are advised to directly contact the officer in charge of your case.
5 Strategies To Avoid Bankruptcy
One should always strive to never be even remotely close to bankruptcy. If you are starting to feel overwhelmed with your debts and feel like you cannot repay them, these are some of the things you can do.
1. Ask for professional help
Again, you can refer to AKPK for free professional assistance. They can provide you with advice and counselling, debt management programmes and financial education that can help you improve your financial situation.
2. Discuss with your bank
Most banks are open to renegotiating your loan terms. They, too, would like to avoid incidents of NPLs as BNM will hold them accountable for that.
The best way is to communicate openly and come to a mutual agreement on a manageable repayment plan.
3. Resell assets and properties
Missing repayments for a month or two will only be reflected on your credit score, but if you are starting to miss repayments for more than six consecutive months, you should consider reselling your liabilities.
Settling debts comes first before saving!
You can also improve your cash flow by applying loans from cooperatives (koperasi) as an alternative to conventional bank loans.
It is better to be safe than sorry. Be sure to take advantage of existing debt repayment facilities in order to avoid going bankrupt. Some effective ways to settle bad debts are debt overlap and debt consolidation.
4. Settle debts through debt overlap
- Overlap with a lower-interest loan
- Overlap with a longer loan tenure
- Overlap in the case of salary deductions exceeding 60% (for civil servants)
This is an overlap technique where your monthly commitments can be reduced and also receive some cash in hand without adding on to your existing debts. This, however, does not mean that your debts are ‘removed’.
Personal loan overlap is one of the techniques used to lower the amount of commitments without actually removing any debt. This is useful in easing the debtor’s burden, but it still requires discipline by the debtor to completely repay their loan.
5. Settle debts through debt consolidation
- Conduct due diligence on yourself (list down all of your debts)
- Find a debt consolidation scheme that offers an interest rate lower than the average interest rate of all of your loans separately
- Identify processing fees & hidden charges
Advantages of debt consolidation
- Focus debt repayments to only one party
- Helps to reduce your monthly commitments
Drawbacks of debt consolidation
- Lower interest rate means a longer loan tenure
- Chances of application getting rejected
- Does not eliminate debt
The Malaysian bankruptcy law has had several amendments, but at present, the minimum debt amount that can lead to a bankruptcy petition is RM50,000.
The common reasons for bankruptcy in this country are personal loans and credit card usage, to name a few. Therefore, it is imperative for the Malaysian public to equip themselves with debt management awareness and knowledge in order to not contribute to the worrying bankruptcy statistics. We hope that this article has been helpful to you.
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