In Malaysia, there are more than 130,000 bankruptcy cases as of December 2024. Some of the leading causes of bankruptcy includes failure to repay personal loans and vehicle loans.
In addition, there has been a concerning rise in the number of young adults filing for bankruptcy, posing limitations on the affected youths’ future, as carrying the bankrupt status means they are not be able to work in certain trades or set up a business.
In 2023, the government introduced a Second Chance Policy, where bankrupt individuals with small-scale debts can be released from insolvency in three to five years.
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What Is The Second Chance Policy On Bankruptcy
The Second Chance Policy allows for the discharge of bankrupt individuals under the age of 40 with small debts below RM50,000. They can be discharged within three to five years after they declare their assets and receive a certificate from the Malaysia Department of Insolvency.
It aims to help bankrupt individuals with relatively smaller sums of debts get a start over in life and be released from strict restrictions imposed on bankrupt individuals. This way, they get to have more options when it comes to their careers and the opportunity to build sufficient income.
How A Person Is Declared Bankrupt?
In Malaysia, a person whose debts exceed RM100,000 and fails to make repayment for six consecutive months can be declared bankrupt. A person is declared bankrupt through a court order that is applied by either the creditor or the debtor.
When the court order is granted, the Director General of Insolvency (DGI) becomes the administrator of the bankrupt individual’s estate. All assets belonging to the bankrupt individual will be sold where proceeds will be distributed to creditors.
Bankrupt individuals are required to visit the Malaysian Department of Insolvency (MDI) branch to provide all details of their assets and declare their income. They may continue to hold a job, with the approval of the DGI, and are responsible for contributing 10% of their personal income to the bankruptcy estate.
Restrictions On A Bankrupt Individual
The declaration of bankruptcy will result in several limitations to an individual’s financial activities, lifestyle and career.
When individuals are declared bankrupt, they won’t be able to access their bank accounts and perform transactions as their accounts will be deactivated. However, they can open a new bank account or use their existing one for salary crediting or other purpose approved by the DGI.
They are also not allowed to borrow credit exceeding RM1,000. Bankrupt individuals are allowed to use a credit card, but the limit of credit cannot be more than RM1,000.
Bankrupt individuals will also need to seek permission before travelling overseas.
In terms of career, some of the things bankrupt individuals are not able to do include working in professions where one needs to fulfill certain requirements to join a professional association or obtain licensing such as lawyer, accountant, liquidator, quantity surveyor or act as a director of a company.
Additionally, bankrupt individuals are not allowed to set up a business whether it’s alone or with a partner. They are also not allowed to work in the business of a relative.
Bankrupt individuals are not permitted to hold office of a Member of Parliament or Member of State Legislative Assembly.
Getting Released From Bankruptcy
Individuals can be released from their bankruptcy status in four ways. Firstly, if they pay off their debt in full to their creditors, their bankruptcy will be annulled or cancelled altogether like they were never bankrupt in the first place.
Bankrupt individuals can apply for a discharge by the court whereby the court will look into the reports by the DGI and consider the conduct of the individuals before making a decision.
Alternatively, individuals can apply for a discharge by the DGI five years after the date of the bankruptcy order, which may be granted upon fulfilling some criteria.
A DGI may grant a discharge without the objection of creditors if the bankrupt individual was:
- rendered bankrupt for being a social guarantor
- registered as disabled
- deceased
- suffering from a serious illness
Lastly, a bankrupt individual can also be automatically discharged after three years from the submission of the statement of affairs, with certain conditions imposed.
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