For most, Bankruptcy is a daunting word which is commonly used when someone is out of means to settle his or her debts. Bankruptcy has been on the rise in Malaysia yearly. At 2002, there are 13,855 cases of bankruptcies while the number of cases rose to 21,987 at the end of 2013. Most of those being declared bankrupt comes from age group of 35 to 45 while car loans would make the top reason for someone being declared bankrupt
Bankruptcy related matters is managed by Malaysia Department of Insolvency or (MDI)
How does someone becomes bankrupt ?
On laymen term, bankruptcy is a legal status that is imposed on someone who cannot settle his debts. Surprisingly a debtor will only need to owe a creditor a minimum sum of RM 30,001 to risk being declared bankrupt. A creditor or debtor may file a legal case for bankruptcy. Here some prerequisites to be met before someone can file for bankruptcy
- The debtor’s total loan exceeds RM 30,000
- The debtor’s has defaulted repayment for over 6 months
- Debtor must be residing in the country for at least 12 months
A person who owes more than RM 30,000 without ability to repay the loan can voluntary petition for bankruptcy status in order to gain protection from legal action or harassment from a creditor. A creditor (banks, financial intuitions) may also serve a bankruptcy notice to force a debtor to repay the loan.
Common factors towards bankruptcy
Loan
Taking up huge loans without the ability to repay is a common factor towards bankruptcies. At least 80% of bankruptcies involves loan where car loan made up the major contrition for bankruptcies in Malaysia.
Credit Card
Inability to repay credit card contributes to 5% of bankruptcies cases in Malaysia. Although being a low figure, the trend of credit card related bankruptcies in on the rise.
Guarantor
Becoming a guarantor can make you bankrupt if your borrowers fail to repay your loan. These loans are not limited to cars, house or even education loan.
Advantage of bankruptcy
Upon being declared bankrupt most creditor will cease any effort to recover debts from a debtor. This usually means all the constant harassment and phone calls will be stopped.
Disadvantage of bankruptcy
Upon being declared bankrupt, the Malaysia Department of Insolvency will assign a DGI ( Director-General Insolvency) to the person. Here are some common rights a person loses when being declared bankrupt.
- A debtor will automatically lose all his assets. DGI will investigate and sell all the debtor’s asset to repay the creditors.
- All the debtors existing bank account will be frozen. A debtor can open a new bank account subjected to approval from DGI for salary purpose
- A debtor will lose the right to travel overseas , subjected to approval from DGI
- A debtor can still maintain a credit card however with a maximum of RM 1000 limit
- A debtor loses all his right to start a business or become a director in any company subjected to approval from DGI
- Certain percentage of debtor’s salary maybe deducted by DGI to repay creditors
- Debtor’s credit rating will be seriously damaged even being cleared after bankruptcy.
Getting out of bankruptcy
There are no automatic discharge from bankruptcy in Malaysia. A person who is declared bankrupt will borne the legal status for the rest of the debtor’s life.
A debtor can only discharge from bankruptcy upon repaying all the debts or renegotiate repayment with the creditors. Upon settling all the debts, a debtor will have to file for a discharge from bankruptcy from the court
