First, know what bankruptcy really means
The most important thing for anyone on the brink of bankruptcy to know: do you legally fall into that category? Here are some major points to keep in mind (according to the Insolvency Act 1967):
- You would need to owe a minimum of RM50,000 to your creditors (an increase from the previous amount of RM30,000) before you can be declared as one.
- Social guarantors are no longer allowed to be declared as bankrupt. These are the people who do not stand to benefit from a loan such as guaranteeing for a grant for educational/research purposes.
- Creditors would now need to personally serve the bankruptcy notice to their debtors; gone are the days when you aren’t aware that you’ve SUDDENLY lost everything in your name!
If, however, you’ve already been declared as a bankrupt, there’s still a chance for you to be automatically discharged after three years from the date of being served the bankruptcy papers. This is only if you’ve managed to achieve the target contribution for your debts, and have declared all your liabilities to the Malaysia Department of Insolvency (MdI).
Be aware of the limitations if you enter bankruptcy
Goes without saying that once you’re a bankrupt, you’d have a variety of limitations imposed on you, thus greatly affecting your quality of life:
- All assets seized: If debts cannot be paid off under normal circumstances, then it makes sense that the Director General of Insolvency (DGI) would take over all of the individual’s assets, such as properties and vehicles. These would then be resold in order to repay any outstanding amount.
- Prohibition on overseas travel: This is a no-brainer, the DGI wouldn’t want a bankrupt individual disappearing and leaving a monetary mess for others to deal with! A written permission from the DGI or a court order needs to be obtained if overseas travel is required.
- Limited funds: All existing bank accounts will be frozen, EXCEPT one main account which will be used for the sole purpose of crediting your monthly income. The bankrupt individual will also not be allowed to spend or obtain credit more than RM1,000.
- Restricted employment options: Depending on the job, there will be restrictions by certain professional associations or licensing authorities, like the medical, law and finance industries. In addition, a bankrupt individual cannot be the director of a company, own a business or be part of a business ownership.
But how are you going to stay away from falling into the blackhole of bankruptcy?
Now, ask for a restructured instalment plan
Approach your creditor (say the bank, for example), and ask for a restructured instalment plan – with this, you’re showing good behavior and that you’re willing to cooperate in order to settle all the outstanding amount owed.
From there, you can slowly work your way out of insolvency. The state of insolvency means that you’re unable to repay your debts immediately, and just need more time to settle the amount owed. Sounds like a better idea isn’t it, than being completely bankrupt! But if you aren't sure where to even begin, and are starting to feel overwhelmed...
And don’t be ashamed to ask for help!
Knowing that you’re on the brink of bankruptcy can be a terrifying thought, and it’s not uncommon for people to report feeling all alone. Don’t worry, there’s actually an estimated 294,000 Malaysians a year who are involved in bankruptcy cases, according to the Department of Insolvency director-general Datuk Abdul Rahman Putra Taha.
There’s also professional help in the form of the Credit Counselling and Debt Management Agency (AKPK). As a unit under Bank Negara Malaysia (BNM), they’re not only licensed to provide free financial education and counselling to those in need, they also have a Debt Management Programme (DMP) that aims to assist borrowers in restructuring their financial liabilities. Their representatives will work closely with each individual to develop a customised debt repayment plan, in consultation with the relevant financial service providers.
If all else fails, there’s a final resort (but please don’t let it get to this stage): the Voluntary Arrangement (VA) mechanism. AKPK will step in as an appointed nominee to negotiate on behalf of the individual. They’ll be able to delay any bankruptcy action and bring the creditors to the table for further discussion.
Prevention is (definitely) better than cure
The most important thing to remember for anyone facing such difficult times is to never give up, as there’s always an avenue to seek help from. With that said, it’s crucial to not even get into such a stressful position in the first place; remember: prevention is better than cure. Since the main cause cited by participants in AKPK’s DMP is poor financial planning, then it only makes sense to get financially educated and break the vicious cycle of debt!