THE Consumers Association of Penang (CAP) is concerned about the January to April 2022 bankruptcy statistics that were revealed recently, following the Insolvency (Amendment) Act 2020 that took effect on Sept 1, 2021, which is just the tip of the iceberg.
With the amendment, a creditor may file for bankruptcy action against a debtor if the debt amounts to RM100,000. The bankruptcy threshold before the amendment was RM50,000. This means that if a debt does not exceed RM100,000, the creditor is unable to file for action.
It is difficult to determine the number of debtors who owe anywhere less than RM100,000, unless they reach out to agencies such as the Credit Counselling and Debt Management (CCDM) Agency, which is under the purview of Bank Negara Malaysia.
As it is commonly known, a debt of even a few thousand ringgit is difficult to manage because a loan default will result in mounting interest, and in times of economic uncertainties, it can be even tougher.
The government’s reason to increase the bankruptcy threshold during the pandemic was to delay legal actions against defaulters.
But how is the government going to monitor cases that are below the bankruptcy threshold? The objective is to reach out to these people and to assist them in managing their debt by promoting CCDM, which undertakes credit counselling and loan restructuring for individuals.
Statistics show there are people aged 25 and below being made bankrupt. However, there was a downward trend from 139 in 2018 to 54 in 2019, 21 in 2020, 20 in 2021 and five from January to April 2022. Even if there is a decreasing trend in 2022 for those aged 25 and below, it is probably linked to the increment of the bankruptcy threshold.
An average of 18 people of all ages were declared bankrupt daily in the first five months. We will never know the actual number of debtors struggling below this threshold of RM100,000, just waiting for their accumulating interest to push them past that threshold.
The other apprehension is that about half of those who became bankrupt in 2022 were aged between 25 and 44 - in their prime of life - trying to build a career, and having to rebuild their credit and secure loans.
People have to understand that no company or financial institution will likely forget a debt owed to them, and it is going to haunt the debtor even a few years later, with added interest.
We advise people who are unable to service a loan because of unforeseen circumstances to try prioritising their loan repayment or seek advice from CCDM for possible solutions.
The other common problem CAP accounted is people failing to update their current correspondence address and contact information with the financial institution they took their loans.
When they default in the repayment on their housing loans, for example, the financial institutions may send them legal notices that they never receive until it is too late.
Therefore, we urge people to take their loan issues seriously. Above all, practice thrift and avoid unnecessary spending.
Mohideen Abdul Kader
President
CAP
