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 Criteria To Be Declared 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.
Bankruptcy Court Order
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 After this petition has been presented, it cannot be withdrawn unless with a court order.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.
3 Ways to Be Discharged from Bankruptcy
There are 3 ways in which a bankrupt can be released from his bankruptcy status:
- By way of annulment – The bankrupt can make an application in court at any time to annul the bankruptcy order under certain grounds eg. the debt has been settled fully or the bankrupt ought not to be made a bankrupt on certain grounds.
- By way of discharge in court – The bankrupt can make an application in court at any time to discharge himself from the bankruptcy status. The Director General of Insolvency (DGI) has to produce a report on the conduct of the bankrupt and cooperation of the bankrupt with the department.
- By way of discharge by the DGI – The bankrupt can make an application to the DGI for a discharge under Section 33A of the Insolvency Act 1967. However, it can only be made if 5 years has lapsed from the date the bankruptcy order was made and some criteria imposed by the DGI in order to discharge the bankrupt.
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. 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 counselling and debt crisis help such as Debt Management Programmes. Under this programme, AKPK will develop a personalised debt repayment plan for individuals who are unable to manage their monthly repayments to banks. This could prevents the borrower from going bankrupt.
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. Remember, your debts comes first before saving!
4. Settle debts through overlapping
3 ways of how overlapping can help to ease your monthly commitment:
- Overlap with a lower-interest loan
- Overlap with a longer loan tenure
- Overlap in the case of salary deductions exceeding 60% (for civil servants)
Be sure to take advantage of existing debt repayment facilities in order to avoid going bankrupt. Some effective ways to settle bad debts are overlap loan that you can apply from koperasi as an alternative to conventional bank loans.
This is 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’.
Overlap loan 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
3 ways of how debt consolidation can help to ease your monthly commitment:
- 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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