What do you know about bankruptcy

The Department of Insolvency reported that bankruptcy cases in Malaysia are increasing year on year. Latest figures show that from 2017 to June 2021, 23.63% of bankruptcy cases involved those below the age of 34.
In Malaysia, the majority of bankruptcy cases for individuals are caused by the failure to pay off their debts or loans, which include housing loans, vehicle loans, personal loans and business loans.
An individual residing in Malaysia can be declared a bankrupt if he/she has debts of more than RM100,000 and has failed to pay the debt installments for six consecutive months.
This is why preventive measures are important to ensure that someone does not fall into the debt trap to the point that they become bankrupt.
What happens to you if you are declared bankrupt?
Let's take a look at some of the consequences of being declared bankrupt. Among them include:
  • all your private assets, like your house, car and other assets will be placed under the administration and supervision of the Director-General of Insolvency (DGI) to be sold off in order to pay the amounts owed to your creditors;
  • your bank accounts will be frozen and a credit limit of not more than RM1,000 will be imposed on bankrupt individuals;
  • bankrupt individuals are not permitted to travel abroad without written permission from the DGI;
  • bankrupt individuals are not allowed to work in certain fields, such as banking, accounting and medicine; and
  • you will be blacklisted from operating or running your own business.
Steps you can take to prevent being declared bankrupt
1. Spend according to your means
There's a Malay saying that goes, wear the clothes that best fit you ('ukurlah baju di badan sendiri'). What this means is that we should know our limits and not fall into temptation or peer pressure to follow trends that could cause us to overspend. For example, if you want to take a car loan, make sure that the monthly commitment does not go beyond what you can afford on your income. According to the Department of Insolvency’s latest report, 37.77% of Malaysians were declared bankrupt due to personal loans, whereas a further 17.71% because they could not service their vehicle loans such as car loans.
Apart from that, you should limit the use of your credit card or services that let you break up your purchases into instalments for the purpose of buying goods that are deemed unnecessary. Why is this so? This is because buying things on credit usually comes with a high interest rate. New payment concepts like the 'Buy Now Pay Later' (BNPL) may sound innovative but it's a double-edged sword if you lack the discipline (and funds) to pay back on time. It's great because there's no interest imposed on what you pay for your purchase but be prepared to pay the penalty on late payments.
2. Be disciplined with your payments
According to Agensi Kaunseling dan Pengurusan Kredit (AKPK), most individuals who are burdened with debts often refuse to own up that they have a debt problem. As a result, their commitments continue to skyrocket and it comes to a point when it becomes impossible to pay off multiple loans at the same time.
To prevent someone from being saddled with many debts, the first key is to be disciplined in your payments. Make sure that every debt is paid off by the stipulated date every month.
You may have heard about late interest fees for credit cards. If you are diligent about paying on time, the interest fee is at 15%, but this jumps to 18% when the bank notices that you are no longer paying on time. This penalty is important to consider in managing your credit card debt as many people tend to stick with the minimum payment just to get by when the reality is that this only serves to compound the interest that you need to pay over a period of time.
Aside from the interest, these late fees also affect your credit score and this can be a problem when you need to take a bank loan as they may reject you if you have a poor credit score. Maintaining consistency in your loan payments ensures that you have a pristine credit score, and helps you manage your cash flow well.
3. Seek professional help
Have an open mind when it comes to managing your finances. Not everyone is a financial expert and that's ok but this does not mean that you should stop making any effort to learn! Financial literacy is necessary to safeguard you from falling for scams, like taking up loans with dodgy companies that are not licensed by the authorities.
If it gets very confusing for you, don't feel shy to seek advice from a professional body. You can seek a consultation with your bank officer to discuss a more comfortable way to pay your loans if you are having financial issues. You may also refer to AKPK, as they provide a free counselling service to support individuals who are having problems paying off their debts. For more information, visit AKPK's website at https://www.akpk.org.my/
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