Let’s look at each respective core change a little closer:
1) A pre-bankruptcy rescue mechanism will now be put into place, also known as a ‘voluntary arrangement’. This is where a debtor is allowed to negotiate a debt settlement proposal with his creditors to avoid the effects of being declared a bankrupt. One such example of a proposal would be to agree to a five-year repayment plan.
2) The disallowance of a bankruptcy declaration on social guarantors. These are people who do not profit from a bad loan such as one who guarantees for a loan/scholarship/grant for educational/research purposes or one who guarantees for a housing loan that is used solely for personal dwelling.
3) Those who have been declared as bankrupt can now be automatically discharged after three years from the date of being declared bankrupt if they manage to achieve the target contribution for their debts as well as declare their liabilities to MdI.
In addition to that, the minimum sum owed to a creditor that would classify an individual as a bankrupt would be raised from RM30,000 to RM50,000. This was by no means a move that condones Malaysians accumulating more debts, rather, the relevant authorities seek to make insolvency as a ‘last resort’. The amendments that were made are all aimed at the social and economic aspects to benefit Malaysians.
“The fact is that as the population grows, the number of bankruptcy cases will increase. With the number of amendments we have put in place, we hope the figure will come down.”
“In the past, it was easier to declare a person bankrupt. We found that 70% of bankruptcy notices were served by way of substituted service, meaning that one could be unaware that he/she has been made a bankrupt because the notice was not served on him personally,” said Malaysia Department of Insolvency (MdI) director-general Datuk Abdul Rahman Putra Taha in an interview with The Edge Malaysia.
What are some of the trends in Malaysia’s bankruptcy statistics?
The number of bankruptcy cases in Malaysia remains stable, but the main reasons for individuals going bankrupt have varied. Over the last five years, that number has fluctuated between 18,000 and 22,000 cases, with a total of 249,000 Malaysians currently embroiled in bankruptcy cases due to their failure to settle a diverse mix of debts.
MdI goes one step further with statistics that show the state of Selangor recording the highest number of bankruptcy cases in the country with 70,817 cases. Their records show that the top five reasons as to why people are bankrupt over the past five-year period are due to personal loans, hire purchase loans, housing loans, credit card debts and business loans.
| Category | Causes of bankruptcy over 5 years | ||||
|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | |
| Personal loan | 3,251 | 4,174 | 4,906 | 5,228 | 6,133 |
| Hire purchase | 5,242 | 6,468 | 6,802 | 4,725 | 4,500 |
| Housing loan | 5,341 | 5,396 | 3,880 | 2,504 | 2,359 |
| Credit card debt | 888 | 1,016 | 1,827 | 1,770 | 2,247 |
| Business loan | 2,978 | 2,800 | 2,150 | 1,670 | 1,989 |
| Social guarantor | 892 | 995 | 1,444 | 1,196 | 1,033 |
| Corporate loan | 654 | 567 | 632 | 619 | 628 |
| Income tax debt | 127 | 163 | 213 | 249 | 281 |
| Student loan | 33 | 32 | 15 | 3 | 4 |
| Others | 169 | 376 | 482 | 943 | 414 |
“I think it had partly to do with the timing. It was expected. If we look at the breakdown, age group-wise, 58% of them were in the 25 to 44 year-old range. These people were just starting out in life and many took loans,” explained Abdul Rahman.
“Also, personal loans were more readily accessible. You had the banks and you could also get loans from co-ops or licensed money lenders. The third factor is that compared with getting a housing loan or a car loan, I don’t think I would be wrong to say that it was much easier to get a personal loan. So that’s probably why you see an increase in that category,” he added.
On the other side of the table, it is interesting to note that Bank Negara Malaysia-led Credit Counselling and Debt Management Agency (AKPK) have statistics showing the number one cause for people defaulting (among those receiving counselling) is non-settlement of credit card bills at 61% while the second highest reason is personal loans at 28%.
Since its inception in 2006 right up till September 30 2017, there were over 600,000 individuals who have chosen to approach AKPK for their counselling services. AKPK’s Debt Management Programme (DMP) was created with the aim of assisting financially distressed consumers in regaining their financial control. The DMP is only available to those who are not declared a bankrupt, not in the advanced stage of litigation, still have sufficient net disposable income after meeting their expenses as well as no debt that is more than RM2mil.
“It can be said that 74% of the applicants for the programme are earning less than RM4,000 a month. The lower the income, the more vulnerable they are in terms of cash flow management and managing their debts. Any increase in expenses will adversely affect their financial position, aggravated by poor debt management,” explained AKPK operations general manager Nor Fazleen Zakaria.
According to AKPK chief executive officer Azaddin Ngah Tasir, the leading cause of Malaysians struggling to juggle their debts is poor financial planning, at 44.7% of the cases received. Other causes which have been given as the reason for debt woes include high cost of living at 19.3%, failure/slowdown in business at 14.8%, high medical expenses at 9.3% and others at 11.9%.
What role do you play in these statistics?
In order to not become a part of the worrying statistics, first off, it is of utmost importance that you have at least basic financial literacy so that you would know how to properly budget your expenses. Not keeping track of where your money flows to in tandem with the inflow is almost a surefire path to bankruptcy. In addition, you could choose to make use of AKPK’s services that include consumer financial education and financial counselling.
“I encourage more people, especially those who have just started joining the workforce, to come to AKPK as the services are free.
“It’s not when you encounter financial difficulties then only you seek for AKPK’s aid. Those who have just started working and have plans to buy a house or car can come to AKPK to have better judgment on having loans or getting a clearer picture on how to manage debt,” said Deputy Finance Minister Datuk Chua Tee Yong.
Secondly, but no less important, is to ensure that you are not held back from seeking the financial assistance/advice you need merely because of the fear of society’s perception.
“I think, in Malaysia, it is partly a lack of education and the stigma associated with being a bankrupt that people don’t know what to do. There is also a lot of misinformation. People are worried about coming to see us.
“In Europe and the US, it is more self-petitioning, rather than petitioning by creditors. The thinking is different; our culture is different. With all the amendments, we are trying to educate the public to be more financially disciplined and let them know that bankruptcy is not the end of the world for them. If you’re honest and if you work hard for it, you can be discharged sooner than you think,” mused Abdul Rahman.
