Raise the bar for self-declared bankruptcy, govt urged

 

The insolvency department said 330 people declared themselves bankrupt last year, almost double the number the previous year. (Selangor Insolvency Department pic)

PETALING JAYA: 

Financial planners have called for a minimum debt level to be imposed for Malaysians who wish to declare themselves bankrupt.

The lack of such a threshold allows those with even small debts to file for bankruptcy and “does leave the system open to potential abuse”, said licensed financial planners V Rajendaran and Saidah Asilah.

They were commenting on a statement by the insolvency department that the number of self-declared bankruptcy cases almost doubled last year, with 330 cases recorded compared to 181 in 2023 and 116 in 2022.

Insolvency director-general Bakri Abd Majid said more people opted to declare themselves bankrupt through a debtor’s petition, a legal process filed in court to protect themselves from excessive creditor claims.

Rajendaran and Saidah said most Malaysians who considered bankruptcy do so out of desperation rather than to intentionally avoid settling their debts.

V Rajendaran.

The absence of a debtor’s petition threshold, unlike the RM100,000 minimum for a creditor’s petition under the Insolvency Act, “does leave the system open to potential abuse”, said Rajendaran

He suggested the RM100,000 threshold for a creditor’s petition be adopted also for the debtor’s petition.

Such a threshold would reserve bankruptcy for those truly in financial difficulty and instead encourage people to seek counselling and debt restructuring options.

“This would ensure bankruptcy remains a last resort rather than a convenient exit,” he said.

Saidah suggested a threshold of no more than 30% of a debtor’s gross income.

Saidah Asilah.

“If Malaysians are mismanaging their debt plannings due to financial illiteracy, a debt threshold should be in place to prevent loopholes or policy abuse,” she said.

She also called for a review of the current bankruptcy process. “There should be sufficient data and statistics to determine whether the current policy needs to be reassessed,” she said.

She said data to the authorities on applicants’ financial information could provide insights into suitable approaches that can be taken to improve the debtor’s petition process. - FMT