Learning about Bankruptcy in Malaysia

Bankcruptcy is something that strikes to us immediately as something negative. It happens everywhere in the world and not just confined to one country, race or nationality. In Malaysia, the total number of bankruptcy cases nationwide has risen from 70,009 in 1999 to 106,000 in 2003 and today the figure stands at 160,000.

There are bankruptcy law to help both the bankrupt and the creditor. It will stop the creditor from harassing the debtor and it safeguards the rights of both parties.

What is Bankruptcy?

Bankruptcy is a legal process initiated by an individual or a company due to the inability to settle debts. People or party who gave out the loan is known as the creditor. Creditors can be a banking institution or even a company giving out hire-purchase schemes.

To protect himself from possible harassment or from any other legal actions by the creditors, the debtor may file for personal bankruptcy. In contrast, the creditors may take action first against the debtor by serving him a bankruptcy notice to recover the money owed by the debtor. Prior to filing for bankruptcy, the following criteria have to be met:

* The sum involved is RM30,000 or more
* The sum of money must be ascertainable (liquidated sum)
* There is a default period of six months for the act of bankruptcy to have occurred.
* Before the petition date, the debtor must have reside in Malaysia for at least one year

How Does a Person Become a Bankrupt?

A person becomes bankrupt for several reasons. Those mentioned below are not uncommon in Malaysia.

Taking Up a Loan

There are several loans available catering different needs.These can cover housing, education and so on.

Acting As a Guarantor

A guarantor can be a social guarantor or a corporate guarantor. A person who stood as a guarantor for loans like education, house, car hire purchase, scholarship and also third-party loans is known as a social guarantor. A corporate guarantor is a person who stood for loans relating to business loans, for example in a business partnership. A guarantor can also be liable to face bankruptcy when summoned by the creditors. The creditors will go after the borrower first and if that fails to recover the amount owed, they will go after the guarantor to settle the debts.

Defaulting On Credit Card Payment

The inability to pay up the amount owed in the credit card account is also one reason to go bankrupt.
What Does It Mean To Be a Bankrupt?

When a person has been declared bankrupt, the court appoints the Director General of Insolvency (DGI) to administer over the bankrupt's assets in order to settle the outstanding debts. The DGI will then initiate an investigation to find any assets or properties that belong to the bankrupt and to sell or dispose them to repay the creditors.

For a Malaysian, being a bankrupt is tough for the individual. Among other things, the individual faces the following hurdles or restrictions:

* He has to give up all his belongings and assets
* He is not allowed to open a bank account without the approval of the DGI.
* He is not allowed to travel outside from the country without first getting approval from the DGI or the court. The DGI will hold his passport.
* He is not allowed to do any business nor become a company director nor even be part of the company's management.
* He has to sacrifice a certain percentage of his monthly income to the DGI to repay his debts.

How To Avoid From Becoming a Bankrupt?

This can be done by taking responsibility for one's financial affair or well-being. This means avoiding taking huge loans to purchase something if you do not have the ability to pay back the monthly installments. It also means being in control of one's spending habits and not to over-commit on too many loans including hire purchase.

The same goes for the social guarantor who does not have the resources and means to settle the debts on the borrower's behalf. So think rationally (not emotionally) and act carefully before signing on the dotted lines.

Do your research properly before starting a business. Ensure that you have enough financial resources and stamina for the start-up and for the first few years. Most businesses do not make money initially and may take a few years to show a profit. Imagine the worst scenario happening and whether you can survive financially. Having just the start-up capital is not enough, you need to have back-up plans and support available.

Some may go bankrupt to unforeseen circumstances like a serious illness, a debilitating accident or being cheated in a business partnership. A person can also willingly file for bankruptcy for the sole purpose of wiping off all his unsecured debts.
How a Person is Discharged From Bankruptcy

A bankrupt will be discharged from bankruptcy when

* He has settled his debts in full to the creditors.
* If the creditors accept the repayment scheme offered by the bankrupt, then the bankrupt can make an application to the court to get an order of discharge.
* Certificate of discharge:The DGI can also use his discretionary power to discharge the bankrupt by issuing a certificate of discharge. This is possible after a period of five years from the date of bankruptcy even though there still remain unsettled debts. However, the DGI will have certain criteria to evaluate before making his judgment such as the bankrupt's conduct or behavior, the age and the financial status.
* Order of discharge: The bankrupt can make an application to the court to request for an order of discharge. The court will refer to the DGI's report before any decision is made to grant a discharge or not or to grant a discharge with conditions attached.

When faced with debts, a person should think before filing for bankruptcy. There could be other options to choose from. Besides the restrictions mentioned above, the bankrupt may face other personal challenges. His future plans and personal development may be negatively affected due to his bankrupt reputation.