Bankruptcy can severely impact an individual’s financial future, both due to the extensive restrictions imposed on bankrupts as well as their consequences to their earning potential. These include:
- Management of assets by the Director General of Insolvency (DGI) towards repayment of debts
- Disallowance of withdrawal from and deactivation of existing bank accounts, barring of new account creations
- Limitation of credit facilities above RM1,000, whether through credit card charges or from a creditor
- Travel bans on movements overseas without a court order or written permission from the DGI
- Barring from directorship in any company or corporation, and from management of any enterprise run by relations, and
- Disallowance to commence any legal proceedings without DGI approval.
Bankrupts are also barred from appointed or elected posts such as Sessions Judge and Member of Parliament, and cannot serve as a trustee in any capacity. Once declared, there are only four routes to be discharged from bankruptcy: applying for an order of annulment when outstanding debts are paid in full; proposals to creditors for a composition or scheme of arrangement; a certificate of discharge from the DGI, and automatic discharge after three years, as provided for under IA 1967.
Up to December 2017, MDI has administered a total of 300,958 bankruptcy cases, with 100,610 of these occurring since 2013. In 2017, this averaged to 51 cases registered and 98 petitions filed every day. However, the number of successful discharges was much lower. From 2013 to 2017, just 13,906 cases were released or otherwise disposed of through court proceedings, along with 46,329 discharges by DGI certificate.
Once discharged, bankrupts are released from the restrictions outlined above. To facilitate discharge, they can observe the following guidelines: presenting themselves at the MDI office upon declaration and cooperating with MDI officers, timely submission of a statement of affairs, regular payments or contributions, biannual submission of income and expenditure statements, avoiding direct payments to creditors, and declaring dividends as well as any changes of address or income.
The Road to Financial Insolvency
What are some of the factors which contribute towards bankruptcy? Mark Chua, Senior Vice President of an international bank and author of the bestselling financial self-help book Who Says, shares his views.
- Compounding Debt and Minimum Credit Payments
Many bankruptcy cases are normally caused by overgearing. They normally load up on unproductive debts like credit cards or personal loans, which are normally used for consumption purposes.
It’s important for banks and regulators to play a more important role in educating the public about the interest rates charged. Paying the minimum due amount for cards, which is 5% of the balance due, is also a recipe for disaster. Your debt tends to compound and balloon over time.
- Investment Versus Speculation
Productive debt like mortgages for investment properties is normally a good thing. However, there’s always a fine line between having investment assets and taking on too much debt for speculative purchases.
Many developers and banks provide relatively easy financing for these “investors”. As a result, they buy five or six under-construction properties in one go, and engage in multiple submissions. This is in order to circumvent the 70% margin of financing rule for third property purchases and above. The time of reckoning will come once the properties are ready, and they find themselves stuck with white elephants which they can’t rent out or sell because they do not have good fundamentals.
- Need For Financial Education
There has also been a disproportionate amount of attention on other issues, and not enough on financial education. Wealth management is critical as we grow older, yet not a single iota of financial literacy is taught at school. It’s no wonder we hear of so many young people being in huge amounts of debt, and that 70% of bankruptcy cases are clustered amongst the younger segment at about 30 to 40 years of age.
For those of you in my generation, do you remember the school subject “Kemahiran Hidup”? Let’s not teach our young ones how to fix a freaking toilet bowl or light switch. They can hire a skilled tradesman or learn by themselves later on in life. It is, however imperative, that we inculcate our young minds with basic personal financial knowledge and investment skills.