Bankruptcy and the Management of Debtors and Creditors in Malaysia

According to a recent news item in the New Straits Times, creditors will not be able to present bankruptcy petitions against debtors unless they can prove that all avenues were made to trace the latter for repayments, and delivery of any notices actually reached them. This is under a planned reform of the Bankruptcy Act 1967.

Currently, under the act, only social guarantors are given this sort of protection as it required creditors to exhaust all avenues to recover debts owed to them by debtors.

Insolvency Department deputy director-general Haini Hassan said the reform would also see the end of creditors easily passing the bulk of work to the department to do retrieval of monies from debtors by liquidating their assets. “There is also a proposal for creditors to be given two to three years to do that before filing the petition,” she said in an interview.

The department is also planning to make it a punishable offence (in addition to the current citation for contempt of court) for bankrupts, who failed to file their Statement of Affairs to the department within 21 days after being declared so.

Haini said these reform plans would not only enable better management by both creditors and the department but would also keep the number of bankrupts in the country under control.

Haini also said it was worrying that out of the 218,561 bankrupts in the country, 60 percent were not even aware that they had been declared bankrupt.

Bankruptcy Trend in Malaysia

According to a recent newspaper report, there were 38357 bankrupts in the last five and a half years between the age of 25 and 44. The trend is that people who declared bankruptcy are getting younger. Here is the breakdown of those who declared bankruptcy from 2005 until May 2010:

Take-home messages


• A business venture can be successful or end in failure. The most important thing is not to put all the eggs in one basket. An emergency fund lasting three to six months to cover your normal expenses is a must.

• You can obtain a loan but it has to be included in your monthly cash outflow. If it is not within your budget. Don’t go for a loan to buy a car or a house. Save for a bigger down payment.

• You are not obligated to stand as a guarantor. You cannot control how another person manages his or her finance so you cannot be sure that the person who gets the loan will honor the loan repayments fully. Do you like to pay for something you don’t own every month? This will happen when the borrower defaulted and he or she is nowhere to be found.

• Credit card is not for getting credit (The bank will be very happy if you do): The right way to use a credit card is to back up a dollar your charge to your card with a dollar in your bank account. At the end of the month, you pay the amount due promptly and fully. The fact is that getting credit and incurring debt is easy but getting out of debt is very difficult.

• There are two things in life you cannot escape; that is death and tax. It is necessary to set aside an amount every month to cover tax payable.