What Do You Know About Bankruptcy?

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.

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56 Comments

  • Take for your information.I think this article should ready by all Malaysians.It will avoid a person to become bankruptcy.

    • jospin

      Reply Reply June 6, 2013

      Dear KC,

      I just came to know that I was bankrupt since 2months ago. The reason is because we failed to pay back our housing loan installments. Actually the loan is under 3 peoples name. How can I be cleared from bankruptcy??

  • Ian

    Reply Reply November 30, 2009

    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?

    • Radius

      Reply Reply February 22, 2010

      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.

      • KCLau

        Reply Reply February 22, 2010

        Radius, thanks for the info.

  • Chithra latha R,

    Reply Reply January 25, 2010

    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.

  • Radius

    Reply Reply February 22, 2010

    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.

  • lim bee chin

    Reply Reply February 25, 2010

    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?

  • CK Chang

    Reply Reply March 5, 2010

    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.

  • Theresa KK Chin

    Reply Reply March 5, 2010

    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

  • My Marketplace

    Reply Reply March 8, 2010

    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…

  • Daniel Chang

    Reply Reply May 3, 2010

    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.

    • sparks

      Reply Reply May 18, 2010

      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.

  • ms chong

    Reply Reply May 25, 2010

    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

  • CLARENCE MATHEW

    Reply Reply August 2, 2010

    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???

  • John Soon

    Reply Reply August 10, 2010

    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?

    • bala

      Reply Reply December 19, 2010

      i have been paying the minimum amount 50 rm for the past 12 years for my credit card balance.My card was cancelled more than 10 years ago.Does our law allow the credit company to claim minimum payment for lifetime

  • rashidi ahmad

    Reply Reply August 10, 2010

    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?

  • KELVIN TAN

    Reply Reply August 30, 2010

    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..

  • MEREDICTH

    Reply Reply September 27, 2010

    hi,
    if i own a Sdn BHd company and gone bankrupt, is there any impact on myself??
    or the bankruptcy law will only chase after the company??
    Thanks

    • Netmask8

      Reply Reply September 27, 2010

      Greetings & G’Day,

      Limited liability for a Sdn Bhd company( share capital/ issue).

      For Sole Proprietorship and Partnership, it has unlimited liability and creditors
      might use court order to make you responsible and full setttlement for the outstanding debts.

      http://en.wikipedia.org/wiki/Corporation

      Have a great day.

  • Martha

    Reply Reply November 26, 2010

    Dear Sir,

    Can bankruptcy proceedings be lodged against 3 defendants together for a total amount of RM50,000.00, or will the sum be divided into 3 parts, which will only be RM16,000.00 per a defendant, far under the RM30,000.00 to be declared made a bankrupt.

  • Christian

    Reply Reply February 24, 2011

    Bankruptcy dread seem to be the dread of any young entrepreneur doing businesses.

    In Malaysia, politic and corruption failed any businesses as easily as bad market planning. The risk of being PUNISHED by bankruptcy out weight gain or contribution to the economy

    What Malaysian Government good at is making new laws to safe guard, those in power to stay in power and the few powerful and wealthy few to continuing milking the public

    However little is being done to enable the bright, intelligence and entrepreneur Malaysia to advance the country through calculated risk, endeavor and confidence

    To this alone, Malaysia is locked in a limbo, where. The rich and powerful will always remain unchallenge and bright, intelligence and young Malaysian will have to leave to give themselves a fair chance

    RNDING, THE MALAYSIAN GOVERNMENT, NEM, GTP AN NKEA ARE ANYTHING A TOTAL WASTE OF THE HUNDRED OF MILLIONS ALREADY SPENT AND THE BILLIONS GOING TO BE SPENT.

    UNLESS THE SMART, INTELLIGENCE AND DILIGENT YOUNG OF THE COUNTRY CAN TAKE A STAKE IN THE COUNTRY THROUGH REASONABLE CALCULATED RISK, WAYS OF COMING BACK FROM FAILURE AND THR OVERNMENT START HAVING PEOPLE IN GOVERNMENT AND CIVIL SERVICES WHO CAN RESPOND TO THE CHANGING ECONOMIC AND SOCIAL ENVIROMENT, THIS COUNTRY AS IT IS NOW CAN ONLY SIT BACK AND ENVY IT’S NEIGHBOURS INCREASING VIBRANT AND PROSPERITY. WHAT TO STOP THIS ENVY FROM BEING TURNED INTO MIGRATING

    THE BN GOVERNMENT BY IT’S VERY POLICIES, INERT AND KNOW NOT IS THE VERY BASICS OF MALAYSIA LACKING IN PROGRESS. EVEN THE SO CALL ECONOMIC AND GOVERNMENT TRANSFORMATION SUFFERING THE SAME FATE AS THE PEOPLE PROSPERITY.

    SO EITHER A MIRACLE HAPPEN IN MALAYSIA OR THE BN GOVERNMENT COLLAPSES, MALAYSIA IS RETARDING

    THE BANKRUPTCY LAWS FOR ONE IS SO ANTIQUATED, IMPRISONING MIND AND BODIES OF 160,000 intelligence Malaysian and nobody reading to do anything, what else can anybody do for Malaysia in Malaysia. It is not the Bankrupted that are living in Limbo, IS IT NOT RIGHT IN THIS INSTANT TO SAY, THE WHOLE OF MAKAYSIA IS BANKRUPTED AND LIVING IN LIMBO, JUST BECAUSE THE SAME FEW IN BN GOVERNMENT, KNOW KNOW BETTER THAN THEIR OWN POSITION AND POCKET

  • Yee

    Reply Reply March 9, 2011

    Hi, I’m married to a divorced man, and he’s actually owed his ex-wife amounted to RM80,000 of the compensation due to divorcing ( he accumulated these amount because he was very sick and need money for medical fees in Singapore). But he managed to pay him back some and left RM55,000 now. As far as I konw, she called to ask for my husband to pay the balance (RM55,000), or else he will sue my husband. In fact she did so in year 2008, my husband got a letter from a lawyer firm. However, after discussion, she agreed that he pay her back in few period of time.
    Now, she want the full amount back immediately. As knowing that the sum involved for bankruptcy is RM30,000, can my husband pay her back RM30,000 first and left RM25,000? Will it unable for her to sue my husband?
    Another question, husband still paying him Rm2,500 every month as agreed during divorce. As I just got married to him about 3 years ago, can my husband waive this amount every month? RM2,500 is too high for him as he is now at the age of 50.
    I would like to have your comment on this. Thank you.

  • Vincent

    Reply Reply May 31, 2011

    My brother in law owing several bank personal loan amounted to around 300k. Now he unable to repay the loan and if he is declared bankrupcy will my sister also involved. Please advice

  • andy eam

    Reply Reply June 22, 2011

    HI,I have a 100k bank debt,
    if they took action for me bankrupcty.
    when it can bankrupcty, how many years bankrupcty??
    malaysia law bankrupcty?

    I know already 30k debt suppliers may bankrupcty.
    I have 110k debt suppliers
    Another all under 25K.
    if bankrupcty son take the time for how long?

  • bob

    Reply Reply October 4, 2011

    hi

    when a layer representing a Bank has presented a “Bancruptcy Notice” to the newspaper, what will be their next step? How long will it be before the person be decralced bacrupt?

  • Raymond Tan

    Reply Reply November 17, 2011

    Hi, just wanna know, if the assets (house) is put under two names, one of the name is about to get bankrupcy, what will happen to the house…

    Rgds..

  • miss cy

    Reply Reply November 20, 2011

    is it really one who r below 30 can become bankrupt due to using credit card?

  • winnie

    Reply Reply December 25, 2011

    is there a search site to check bankruptcy records in malaysia to check if someone is bankrupt or has been or just to check their financial stability?

  • nancy

    Reply Reply May 17, 2012

    my bf ask me to b his passport guarantor as he wanna go oversea.
    wat do i need to know n wat’s the risk of being passport guarnator?

    • KCLau

      Reply Reply June 8, 2012

      Hi Nancy, I am not sure about that.

  • Ng Pek Hoon

    Reply Reply June 30, 2012

    Can I apply discharge bankruptcy after 5 years?
    How to apply ? By what department?

  • Namesh

    Reply Reply July 4, 2012

    Hey guys can any wan help me to explain the situation, I’m juat a payee director for my company and this clearly stated in my employment contract and didn’t get any benefit what so ever, i only will get director fee every month. I’m just wondering does myself will be in trouble if this company bankrup? Please help me ASAP, Thanks

  • denis

    Reply Reply July 12, 2012

    i have a car under my name but my ex husband is using it as i ask the insolensi dept they say it wont take away my car as it is my transport for work n my ex is paying for the car not me.

    I am also cinfuce as i heard like example i owe 60k total plus interest & they say if i go for bankrupcy i only have to settle the total amount that i spend before & the interest will be cut off all ihave to pay is the amunt i spend. But if after i have settle the bebt am i a free person wil i get my pasport back ause i am willing to pay but cant afford t pay that much.

    Another fren of mine say wait for cpourt latter attend the court & inform the judge i can only afford to apy a certain amount that is more confusing me is this also declare bankrup ?

    I did try to ask bank for a good payment scheme but they only care to settle full lum sum or quaterly

  • Nora

    Reply Reply August 2, 2012

    Hi, thanks for this article. I have some questions:

    I have two houses – For 1st house, I took a loan with Bank A, still paying them and no problem at all. For 2nd house, I took loan with Bank B, but having problems with payment and Bank B has filed for bankruptcy on me. Let say, if I was declared a bankrupt, will the 1st house is taken away from me although it is still under cagaran for Bank A?

    I live in the 1st house. 2nd house was an investment went wrong case.

    Pls advice. Thanks.

  • mala

    Reply Reply September 7, 2012

    I owe the bank RM33,000.00 through Credit Card. We don’t pay they declare bankrupt. What action will be taken at the Bank offering to customers all this loan whereas they know our income is not sufficient to pay back the amount. Firstly, stop the banks from calling the customer and offering and tempting to take up the the loans. I am victim for this cash-on-call.

  • cindy

    Reply Reply November 1, 2012

    I am currently under AKPK program but I find that I can no longer pay the instalments so I am thinking of declaring myself a bankrupt. Given my financial disposition, I cannot afford a lawyer so I would like to file the documents myself.
    Can anyone help me please with the information on how to do a self-filing to the
    high court, what are the procedures and documents required and the cost of filing
    the bankruptcy? Thank you.

    • Mk

      Reply Reply December 18, 2012

      Just go insolvency department of the state that you are staying. They will charge you with a one time fee of RM1,500 to file bankruptcy for you. another option is let the bank it self file bankruptcy for you and you dont have to pay RM1,500

      • cindy

        Reply Reply December 19, 2012

        Thanks for ur reply, MK. I have gone to Insolvency to enquire how to go about it but they just ask me to go to high court to get the form. I called another branch but not much help either. Anyway, thanks for your input.

        • Mk

          Reply Reply December 22, 2012

          Hi Cindy, so sorry to hear things like this happen to you by the which state are in ? Insolvency dept are suppose to assist but not kicking you around like a ball (by the way there are still some of our government agency doing this to the public)
          In this case my advise just wait for the bank to take action and safe that RM1,500 (A lawyer friend has given this advise)

          • cindy

            December 22, 2012

            Hi Mk,

            Although it would be easier to just leave everything to the banks to take action, my concern is that it would take a long time as it is just not one bank which I owe, & the banks would include all their legal fees & whatever charges on top of the amount I owe them & it would take me
            a lifetime to repay.

            I do intend to pay them back only with whatever I can afford and if declared a bankrupt, I can opt for a monthly payment which I can afford until such a time where I have the funds to discharge myself from bankruptcy.

            Thanks for your advice & concern.

  • sabrina

    Reply Reply February 25, 2013

    Dear Sir,

    my company is suing a person that owe us money. recently we get to know that person is a bankrupt. the judgewho hearing our case already instructed for his lawyer to appoint OA. i just want to know as per below:-

    1.how long normally court allow a defendant to appoint OA?

    2. if the defendant failed to appoint OA,,can we as the plantiff appoint the OA?

    3. Can we plantiff sit down and discuss with OA on the amount of debts owing to us by defendant?

    4. is it true that mostly OA is not higly educated and they only act as a government servant that normally will face some diffulcities to deal with? As i heard many OA is not doing their job properly.

    appreciate if you can advise on the above.

    thank you

    • KCLau

      Reply Reply February 27, 2013

      Hi Sabrina, since I am not in the business of providing legal advice, I suggest that you talk to a legal advisor for accurate information.

  • Ash

    Reply Reply April 10, 2013

    Hi, My mom took a personal loan from Public Finance and due to some problems in the family and her job she was unable to settle the loan. She was declared bankrupt in 1994 and has been living on the help of her parents all this while till her dad passed away 6 yrs ago. I am in college now with the help of my uncles and aunts. but i pity my mom who has lost her arm in the accident and has lived without support of my father who abandoned us 15yrs ago I like to get some help to obtain a discharge for my mom who is 54yrs old now Can someone pls help me??

  • Mrs Koh

    Reply Reply March 24, 2014

    Dear Mr Lau

    I have no knowledge of law so urgently need your help :-

    I have been a baby sitter for more than 15 years in order to earn a living to bring up my 5 children, we stay in a rented house and i bought a secondhand car for my children to travel to college, the vehicle is in my name and also have a little bit of savings in my name, what if, my husband declared bankrupt, will this affect me? He does not have any assets nor savings and recently i bought some new electrical appliances, will the insolvency officer come over to cease all my belongings?

    • KCLau

      Reply Reply March 27, 2014

      Hi Mrs. Koh, So sorry to know your situation. Since I am not a lawyer and not familiar with legal issue, based on my limited understanding, I don’t think your personal asset will be compromised because your husband declared bankruptcy.

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