What is the meaning of bankruptcy? Basically when it comes to the bankruptcy in Malaysia, it refers to the process of a debtor or borrower being declared bankrupt following a court order because they are unable to repay a debt of not less than RM50,000 within a period of more than six months. The procedure for declaring bankruptcy in Malaysia will be announced through advertisements in newspapers or through notice boards in the court.
Bankruptcy Malaysia: Criteria that Cause Someone to be Declared Bankrupt
Before you understand the effects of bankruptcy in Malaysia on young generation, the following are the criteria that can cause you to be declared bankrupt for your reference:
- Unable to settle debts of not less than RM50,000;
- Failing to pay debts for a period exceeding six months;
- Individual must be a resident in Malaysia for at least one year.
An individual can be declared bankrupt through the following two ways:
- Creditor’s Petition refers to a bankruptcy petition filed by a creditor against a debtor with a debt exceeding RM50,000;
- Debtor’s Petition refers to an individual voluntarily declaring themselves bankrupt to protect themselves from claims by creditors that cannot be satisfied. Usually, there is no minimum amount to declare oneself bankrupt. Once the petition is filed, it cannot be withdrawn without the court’s permission.
5 Bankruptcy Effects on Young Generation
According to statistics released by the Malaysian Insolvency Department, as many as 10,317 individuals have been declared bankrupt since the Covid-19 pandemic hit Malaysia in March 2020. Selangor recorded the highest number of bankruptcies with 2,555 individuals, while Kuala Lumpur, Putrajaya and Labuan recorded 1,288 bankruptcies during that period. If you are declared bankrupt, what are the effects of being blacklisted or the bankruptcy impact on you? Here are five bankruptcy effects that you need to know:
1. Under the Supervision of the Head Director of Insolvency
Individuals who are declared bankrupt will be placed under the supervision of the Head Director of Insolvency (HDI). The HDI will administer and manage all assets owned by the individual to pay off all outstanding debts.
2. Travel Restrictions
Bankrupt individuals are also not allowed to leave the country unless they obtain written permission from the HDI or a court order allowing them to do so.
Immigration Travel Status Check
The Immigration Department has developed the Electronic Application System for the Malaysian Immigration Department. It aims to assist Malaysians in checking their travel document status for overseas travel. You only need to enter your identification number to check your travel status.
3. Limited Credit
In addition, existing bank accounts will be cancelled and bankrupt individuals are prohibited from making any withdrawals from their existing bank accounts. Not only that, bankrupt individuals are also not allowed to spend more than RM1,000 using a credit card or obtain credit exceeding RM1,000 from any creditors. In other words, bankrupt individuals cannot open a bank account and cannot buy a car.
4. Seizure of Assets
After being declared bankrupt, all assets owned by the bankrupt individual will be managed by the Insolvency Department. For example, any houses or cars owned by the bankrupt individual will be taken and managed by the Insolvency Department to be used to pay off the debts.
5. Employment Restrictions
Certain professions in Malaysia such as lawyers, surveyors, accountants, and doctors are not allowed to work or have restrictions on bankrupt individuals by professional associations or authorities. In addition, bankrupt individuals cannot be appointed as company directors or own a business or be part of a business ownership.
3 Reasons Why Malaysians Are Declared Bankrupt
The majority of Malaysians who are declared bankrupt are between the ages of 35 to 44 years old (32.25 percent). This is followed by individuals aged between 25 to 34 years old at 22.52 percent. In other words, the younger generation is at higher risk of bankruptcy if they do not plan their expenses properly. What are the causes of bankruptcy in Malaysia? Here are some of the reasons for bankruptcy in Malaysia for your reference:
Most cases of bankruptcy in Malaysia are caused by outstanding vehicle loans that are not settled. In addition, there are also bankruptcy cases caused by the borrower’s failure to repay housing loans, personal debts, and business debts.
It is undeniable that cars have become one of the necessities of modern times. Many individuals, especially young people, make the wrong decision when buying a vehicle, resulting in them being declared bankrupt because they cannot afford to pay monthly installments. According to statistics from the Malaysian Insolvency Department, as many as 23,191 bankruptcy cases recorded in Malaysia are due to failure to repay car loan debts, accounting for about 27.18 percent of the total causes of bankruptcy in Malaysia.
We are often told that owning a home is an important priority, and that the best time to do so is when you’re young. However, rushing to buy a house can lead to bankruptcy at a young age. This is because you’ll be tied to a system that will bind you for a long period of time, around 30 years or more. Based on records, housing loans accounted for 26 percent of the total number of bankruptcies in Malaysia, and is the second highest category after car loans. Therefore, plan your home purchase wisely to avoid being burdened with high financial obligations at a young age.
Many individuals make the decision to take out personal loans to get immediate cash. The problem becomes more serious if you do not have proper financial management knowledge and ways, which in turn can lead you to be trapped in high monthly commitments. For example, there are individuals who are willing to borrow personal loans just to bear the cost of their dream wedding ceremony. For the record, personal loans account for about 24 percent of the total causes of bankruptcy in Malaysia.
In addition, business loans contribute to about 14 percent of all cases of bankruptcy in Malaysia. Usually, many individuals who want to start a business choose to apply for business loans. However, this method is risky because if the business is not successful, you still have to pay the monthly commitments as scheduled. Therefore, it is better for you to use the capital you have in hand if you want to start a business to avoid incurring high debt and experiencing more serious losses.
2. Being a Guarantor
There are also cases where individuals are declared bankrupt for becoming guarantors for others. Usually, the bank will demand payment from the borrower first. However, if the borrower is unable to repay the debt or runs away from paying it, the bank will demand payment from the individual who acted as the guarantor for the borrower. Essentially, a guarantor is involved directly if the borrower fails to repay the loan, as the guarantor has also signed a guarantee agreement to assume joint liability on behalf of the borrower if the borrower fails to repay the loan.
3. Credit Card Usage
It is undeniable that credit cards offer many advantages. However, if used without control and high discipline, it can become a trap. Many forget that credit card interest rates can become very high if there are unpaid balances. Therefore, you need to practice using credit cards correctly to avoid bearing a high debt burden. According to statistics, five percent of bankruptcy problems are due to uncontrolled credit card usage.
Getting Out of Bankruptcy, Ways to Resolve Your Bankruptcy Problems You Need to Know
It is important for you to know your current financial status to avoid failing to repay loans and being indebted beyond your means. If you are declared bankrupt, your name will be blacklisted and you will no longer be able to travel abroad, buy a car, or apply for any credit loans from any bank. If you are blacklisted, there are several ways that you can consider to help you get out of bankruptcy in Malaysia. Here are some of the ways that you can consider:
1. Pay off All Debts
After being declared bankrupt, you need to discuss with the Malaysian Insolvency Department. From there, you can find out the amount that needs to be paid every month depending on the assets you have and also your job. You are advised to follow the payment schedule that has been set to help you clear your debts faster.
2. Make an Application to the Court
You can apply for discharge from bankruptcy status in the Federal Court. Usually, the court will consider your application by taking into account several factors, including whether payments were made on time or if you did not violate any rules during the bankruptcy period. After being discharged, you may now open your own bank account, travel abroad, and do things that were not allowed during bankruptcy.
3. Wait for 3 Years
The government has made several amendments to the existing bankruptcy rules. Under the new amendment, you may be granted an automatic discharge subject to certain conditions, as follows:
- Declared bankrupt after 6 October 2017;
- Have completed the Statement of Affairs form, application form, and affidavit;
- Have filed income statements for a period of six months;
- Under monitoring to meet contribution targets for three years;
- Comply with all the rules that have been set.
Bankruptcy Malaysia: 4 Tips to Avoid Bankruptcy
Even though there are ways to help you get out of bankruptcy, it takes a long time to recover your finances and get yourself removed from the bankruptcy list after being declared bankrupt. Therefore, avoid being declared bankrupt and seek help from professional organizations. Here are four tips that you can consider:
1. Get Professional Help
If you are facing difficulties in repaying your loan debts, you can seek assistance from the Credit Counseling and Debt Management Agency (AKPK). AKPK was established by Bank Negara Malaysia to provide financial counseling services, debt management programs, and financial education for free.
2. Refinancing the Loan
Most banks are open to renegotiating loan terms to prevent and reduce the occurrence of non-performing loans. Therefore, if you are facing difficulties in repaying your loan, discuss with the bank and consider refinancing the loan or formulating a repayment plan that you can afford and is agreed upon by all parties involved.
3. Revaluing Assets and Commitments
In addition to reducing unnecessary expenses, you are also advised to consider withdrawing funds from any investments you have or selling assets to pay off your debts. If you have several assets, you can sell them and use the proceeds to pay off your debts and loans. This method can help you avoid being declared bankrupt and is certainly better than being declared bankrupt and having all your assets taken away.
4. Pay off Debt with the Overlap Technique
The technique of overlapping personal loans is also a popular technique to reduce monthly commitments and receive ‘cash in hand’ without increasing the existing debt. However, this method is not ideal because the debt burden still exists and may increase if the borrower is not disciplined in paying off the debt.
Hopefully this sharing can help you avoid being declared bankrupt and get to know about bankruptcy in Malaysia. In addition, if you want to get medical and health insurance for additional protection to your future, visit the Qoala website for more information. Qoala is the best insurance comparison and renewal platform in Malaysia with a guarantee of an easy, secure, and fast insurance buying process.