Bankcruptcy is a word that immediately brings a negative vision to our minds. It happens everywhere in the world and is not partial to a certain country, race or nationality. In Malaysia, the total number of bankruptcy cases nationwide has risen from 70,009 in 1999 to 106,000 in 2003 and today the figure stands at 160,000.
Bankruptcy law exists to help both the bankrupt and the creditor. It will stop the creditor from harassing the debtor and it safeguards the rights of both parties.
What is Bankruptcy?
Simply said, it is a legal process initiated by an individual or a company due to the inability to settle his debts. Bankruptcy happens when a person is unable to settle his debts (known as a debtor) owed to the people or party who loan him the money. The people or party who gave out the loan is known as the creditor. Creditors can be a banking institution or even a company giving out hire-purchase schemes.
To protect himself against possible harassment or from any other legal actions by the creditors, the debtor may file for personal bankruptcy.
On the other hand, the creditors may take action first against the debtor by serving him a bankruptcy notice to recover the money owed by the debtor.
Before filing a bankruptcy petition either by the debtor or creditor, the following criteria have to be met:
• The sum involved is RM30,000 or more
• The sum of money must be ascertainable (liquidated sum)
• There is a default period of six months for the act of bankruptcy to have occurred
• Before the petition date, the debtor must have reside in Malaysia for at least one year
How Does a Person Become a Bankrupt?
Generally, a person falls into bankruptcy due to several reasons. Those mentioned below are not uncommon in Malaysia.
• Taking Up a Loan
There are various loans available to cater for different needs and wants. These loans can be personal loans, study or education loans, housing loans and even buying a car under a hire-purchase scheme.
• Acting As a Guarantor
A guarantor can be a social guarantor or a corporate guarantor. A person who stood as a guarantor for loans like education, house, car hire purchase, scholarship and also third-party loans is known as a social guarantor.
A corporate guarantor is a person who stood for loans relating to business loans, for example in a business partnership.
A guarantor is also liable to face bankruptcy when summoned by the creditors. The creditors will go after the borrower first and if that fails to recover the amount owed, they will go after the guarantor to settle the debts.
• Defaulting On Credit Card Payment
The inability to pay up the amount owed in the credit card account is also one reason to go bankrupt.
In May 2008, it was reported in one of the national newspaper that last year in 2007, there were 1,873 bankruptcy cases due to credit card usage. Although the figure is still low, there is a trend showing the numbers has been rising from 1,397 in 2004, 1,479 in 2005 and 1,656 cases in 2006.
What Does It Mean To Be a Bankrupt?
When a person has declared bankruptcy, the court will appoint the Director General of Insolvency (DGI) to administer over the bankrupt’s assets in order to settle the outstanding debts. The DGI will initiate an investigation to find any assets or properties that belong to the bankrupt and to sell or dispose them to repay the creditors.
For a Malaysian, being a bankrupt is tough for the individual. Among other things, the individual faces the following hurdles or restrictions:
• He has to give up all his belongings and assets.
• He is not allowed to open a bank account without the approval of the DGI.
• He is not allowed to travel outside from the country without first getting approval from the DGI or the court. The DGI will hold his passport.
• He is not allowed to do any business nor become a company director nor even be part of the company’s management.
• He has to sacrifice a certain percentage of his monthly income to the DGI to repay his debts.
How To Avoid From Becoming a Bankrupt?
A straightforward answer to avoid becoming one of the statistics is simply to take responsibility for one’s financial affair or well-being. It means not to take huge loans to purchase something if you do not have the ability to pay back the monthly installments. It also means being in-control of one’s spending habits and not to over-commit on too many loans including hire purchase.
The same goes for the social guarantor who does not have the resources and means to settle the debts on the borrower’s behalf. So think rationally (not emotionally) and act carefully before signing on the dotted lines.
For those intending to open a business, do your research work properly and thoroughly. Ensure that you have enough financial resources and stamina for the start-up and for the first few years. Most businesses do not make money initially and may take a few years to show a profit. Imagine the worst scenario happening and whether you can survive financially. Having just the start-up capital is not enough, you need to have back-up plans and support available.
There are cases however when ill-fate strikes and a person becomes bankrupt due to unforeseen circumstances such as a serious illness, a debilitating accident or being cheated in a business partnership.
Then there are cases where a person willingly files for bankruptcy for the sole purpose of wiping off all his unsecured debts. These ‘non-genuine bankrupts’ take advantage of the legal process to ‘write off’ their bad debts and the amount can run up into the millions but is still living a luxurious lifestyle.
How a Person is Discharge From Bankruptcy
A bankrupt will be discharged from bankruptcy when
• He has settled his debts in full to the creditors.
• If the creditors accept the repayment scheme offered by the bankrupt, then the bankrupt can make an application to the court to get an order of discharge.
• Certificate of discharge:
The DGI can also use his discretionary power to discharge the bankrupt by issuing a certificate of discharge. This is possible after a period of five years from the date of bankruptcy even though there still remain unsettled debts. However, the DGI will have certain criteria to evaluate before making his judgment such as the bankrupt’s conduct or behavior, the age and the financial status.
• Order of discharge:
The bankrupt can make an application to the court to request for an order of discharge. The court will refer to the DGI’s report before any decision is made to grant a discharge or not or to grant a discharge with conditions attached.
When face with debts, a person should seriously consider before choosing to file for bankruptcy. There may be other better options to choose from. Besides the restrictions mentioned above, the bankrupt may face other personal challenges. His future plans and personal development may be negatively affected due to his ‘bankrupt reputation’. Society naturally will see him in a different light and treat him differently. In addition, it may affect his ability or opportunity to apply for future loans in order to advance himself in his career or business.
Therefore, consider yourself to have been forewarned on this subject matter after reading this article.
For more detail information and to gain a deeper knowledge on the subject of bankruptcy, the following websites can be referred to:
This article is shared by Jacquelyn Wong, a regular contributor for KCLau’s Money Tips.
{ 17 comments… read them below or add one }
Take for your information.I think this article should ready by all Malaysians.It will avoid a person to become bankruptcy.
Hi,
I refered to three statements:
(a) … The sum involved is RM30,000 or more …
(b) …. There is a default period of six months for the act of bankruptcy to have occurred …
(c) … The inability to pay up the amount owed in the credit card account is also one reason to go bankrupt. …
That’s mean if we cannot pay our credit card settlement within 6 months and if our credit card debt is more than RM30,000, then only the credit card issuers (banks) can declare us bankrupt?
yes, they can. but usually for them, RM 30,000 is not considered as fatal amount to credit card company to get payment from the card holder. Usually they advise the person first to pay back unless you are declared to them you can’t pay them back then they may issue bankruptcy on you.
Radius, thanks for the info.
i would like to know the following:
Can a person, X , who has stood as a guarantor for person’s A car , be a guarantor for a person’s B car?
Also Mr X has a housing loan and a car loan to his name.
Please advise.
as far as i know, you can because one person may become guarantor to multiple contract unless it is stated in the contract that the guarantor cannot become another contract’s guarantor. the issue of mr x have house loan and car loan is unrelated to this case as he needs those necessity.
hello, my husband been a guarantor for his brother car and now that car also send bek to bank and still have outstanding 12k. how to solve this?
2) if we have study loan with PTPTN , do this also will be bankraptcy if more than 30k?
Hi,
If a Company employ a person (under bankruptcy status), what document or information that the Company need to inform / submit to Director General of Insolvency?Thanks.
Dear Sir,
I have a friend who is a co-signatory to a letter of undertaking for a business project indemnify an amount of RM600,000.00. The company has not been able to repay the supplier, would my friend be sued for bankruptcy?
Thanks for comment.
Theresa KK Chin
I think this article is very recommended for every malaysian for reading.
We all heard about bankruptsy, but don’t know all the details.
Thanks for this…
Dear KC,
My mom was made bankrupt since 1983, she was a guarantor for my dad business, after so many years How can I confirm her status and how can I help her to be release as a bankruptcies. She have no personal income – all her expenses is been borne by the children.
My intention is bring her for travelling to visit my sister in Australia.
I am in the same boat. My mom was a guarantor for my uncle’s business, and was made bankrupt since the 90s. We have been pursuing the OA’s office for several years now and even offered a fraction of the debt as settlement. I don’t know if it is the inefficiencies of our system but the progress is extremely slow. The OA is to inform us a court date but gave us some reasons (or excuses) that he/she doesn’t go to the court anymore so cannot follow up, instead ask us to directly follow up with the court (?!!).
Our last resort if this doesn’t get anywhere, is to get approval from the DGI for her travel, well, if the OA doesn’t take years to act on our application.
Dear KC,
My dad was owning few banks’ credit card outstanding more than RM 150k. I would like to buy over his house which still balance RM 120k to pay to the bank. Is it possible for me to buy the house and apply the house loan under my name? What happen if my dad been sued for bankruptcy after few months later and is it will affect the house?
Thanks
Ms Chong
Bankruptcy is basically meant to assist the debtor to freeze his asset and sell the asset by DGI to satisty the creditors demand but unfortunately in malaysia the system been abused by the capitalist bankers and a convenient way for lawyers to demand money due without goin thru debtors summon in court why he cant pay. Of course there are genuine bankrupt’s who deserve that but many are made banrupt as a mean of punishment and those poor fellows are deprived of their civil liberties as enshrined in our constitution. Bar council and judiciary is guilty in this Genocide of Insolvency on naive citizens…our bankruptcy law is based on the 19th century english law but in england a bankrupt can be discharged after a year as the bankers and creditors are not given the liberty to punish debtors for the rest of his life…malaysian jurist have not given any useful contribution and wonder what are our MP’s elected in our Parliament have done???
My friend owes about RM8,000.00 to a credit card company and has not settled it for over the past 10 years. Firstly, for this small amount, would he be considered a bankrupt? Secondly, will the bank charge him interest when he is able to settle the amount later? Thirdly, if the amount is not settled yet, can he get his passport renewed if he intends to go to Thailand later?
dear dg insolvenvy malaysia,
i am a garantor for my friend for more than 10 years and the payment for his business is withheld by RTM RM527,000 and the bank still make him bankrupt eventhough the money is still in RTM and i stood garentor for him for RM500,000.the bank is AMANAH FACTOR SDN BHD made him bangrupt eventhough he have deliver the services,sorry to say malaysia is for the rich can buy justice since this is highcourt case i have to pay RM5000 just for the filing not include lawyers fee.just imaging with me 48yrs with with 7 kids and wife not working.were is the justice for the poor,
no house,no cars no nothing
if i be a robber ?who to blame?
DEAR SIR….
A few years ago my girlfriend used my named to gat an installment loan from courts mammoth and after we broke up she stop paying them.I even heard that courts sent a few ppl to take back the furniture from her house.I recently received a letter from a law firm saying i must pay up RM4500.00.what happen if i just let it be or what is your best advise on this…thanks..
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