Bankruptcy is the most feared word; for professionals, businessmen and government servants alike. Which should be the case, because technically, being declared a bankrupt means that you are finished in the eyes of the (material) world.
Here we shall try to explain in the simplest and casual manner, so we purposely omitted quoting any piece of legislation. It’s for the understanding of the layman who wants to know to know the intricacies of being a bankrupt but have always been hesitant to ask a lawyer.
To keep it simple, bankruptcies are declared when the court (upon an application by the Petitioner) finds that you are unable to pay a certain amount of Judgement Sum. The treshold to file a Bankruptcy Petition used to be RM10K, then RM25K, then now it’s RM100K because of current inflationary rates.
Bankruptcy can also be a voluntary act. A person (or company) may apply for bankruptcy (or liquidation) if they feel that they are unable to pay a debt. It need not even be a Judgement Sum. There are pros and cons which we will try to discuss lightly in this blog.
Traditionally, bankruptcy is the last resort that the Creditor takes against a Debtor. There are other methods to satisfy a Judgement that are usually pursued first, such as Judgement Debtor Summons, Writ of Seizure and Sale et cetera before Foreclosure Proceedings and Bankruptcy (Liquidation) are initiated. However, nowadays, sometimes these actions are taken almost simultaneously.
Due to its very nature, there is a certain stigma attached to people who are Bankrupts. People do not want to have any deals with them, and instead try to avoid them like the plague.
But Bankruptcy Law actually works both ways. It was devised to give a second breath of life to the Bankrupt. Once a person is declared bankrupt, all his assets in his estate are managed by a government department known as the Official Assignee. In Malaysia it is now called the MdI (short for Malaysian Department of Insolvency).
Once a person is adjudged a bankrupt, the estate goes to the MdI, and whatever interest rates that he was subjected to before is no longer applicable. The Creditors cannot harass him directly anymore for payment. Instead, they have to line up their claims (if their loans are secured), or have to file a Proof of Debt (if they have unsecured loans).
On the part of the Bankrupt, it’s not easy sailing for him though. True, he is now free from any person (or Banks) directly demanding him for payments. But he has to deal with the MdI. Namely, he has to declare all his assets, liabilities, income, expenses, and he has to propose an amount as a monthly payment towards his estate.
Under the law, he cannot do any transaction worth more than a thousand ringgit. In fact, he is not allowed to have a sum in excess of that amount, above his allowable monthly expenses (which he has to declare).
If he was a professional, most probably the professional body prohibits a bankrupt from continuing that profession. Lawyers cannot be bankrupts, so a Bankrupt cannot practise. And generally he cannot hold any jobs in the management of a company; public or private. Or any titles to a property for that matter.
And you can’t stand for elections. That has stopped many prospective candidates before.
A Bankrupt’s international passport will also be compounded by the MdI. He can still apply to go overseas if there is a valid reason, by submitting an application and paying a deposit and providing two guarantors.
Can you be “proactive” and get rid of your properties before the Court declares you a bankrupt? Some people have asked this question before. Can you transfer your assets to, say, your spouse beforehand? The answer is in the negative. It is certainly not advisable, because the law has a doctrine of tracing or clawing back any transactions done within the past six months, as they are purported to have been done to try to frustrate the effect of bankruptcy.
By this time, probably you are already scared out of your wits. Yes, bankruptcy is never easy, but it is a “necessary evil” to help you back on your feet. A lot of people around you are “happily bankrupts” without you even knowing it. And the reality is that nowadays even youths are more and more drawn into bankruptcies because of Credit Card and Hire Purchase debts. And generally more new cases too because of the pandemic.
There are also Bankrupts who have been known to dodge the Bankruptcy Law. There is actually a weakness in the system, which probably takes some time to rectify. For example, if the Bankrupt refuse to surrender himself to the MdI and do a “Public Examination” declaring his total assets, liabilities, income and expenses. And does not surrender his international passport. There are cases where the Immigrations Department is not aware that such and such person is a bankrupt and happily allows him through the country’s gates.
In terms of banks too, there are some banks that are unaware that a person is bankrupt, if the MdI too is not aware. And for some institutions like the Tabung Haji, they do not close a Bankrupt’s account and send all the pilgrimage money to MdI, because they existed under a different act. This is however not the case for Amanah Saham Nasional, although their respective headquarters are located literally side by side.
What hope is there for bankrupts? For a start, it’s not a lifelong sentence. It’s only a temporary curse, until you can get your act together. The Bankrupcy Law provides that you can settle the debt and apply for a discharge at any time.
The law also provides by a discharge when you have settled at least two third of your debt, and shown consistent good behaviour. This is the power vested in the Director General of the MdI, or in the Court. So there are generally two ways to get a discharge.
However, before you get such a discharge, your Creditors are given a chance to object, if they still have the reason to.
Once you are discharged, your record is clean. A Bankruptcy Search would not reveal the fact that you were a Bankrupt and has been discharged. It just states whether you are a bankrupt or not. So, you are free to reclaim your former life back minus any stigma that’s attached to it. Provided that nobody knew it beforehand.
However, if you are already a bankrupt now, don’t fret too much. Ask (or read about) any millionaire you know or heard about. Chances are that half of them have experienced being a bankrupt, and have bounced back with a vengeance. There’s something magical that happens when you are completely down and lost everything.
