As city dwellers in this modern day and age, it is almost impossible for us to escape the prospect of having to take up a bank loan or two, and end up owing the bank some money.
Common Ways You Can Owe Banks Money
As soon as we enter adulthood and step foot into the workforce, our financial responsibilities and burdens would start to pile up. Often, it starts with our first credit card.
If we don’t keep an eye on our financial gearing, we might end up drowning in a pile of debt that is impossible for us to repay before we even realise it. When the bank comes calling, it is often too late.
The most significant chunk of debt we are likely to incur in our lifetimes is probably our housing loan. Once we get married or start a family, most of us would usually have no choice but to take out a 30 year mortgage for the purchase of our first house.
- Personal Loans
Some of us might have taken out some personal loans to start a business, finance our higher education or for emergency purposes.
- Credit Card Debts
While credit cards can be a great financial tool if we know how to use them wisely, they can also cause us to be stuck in a huge pile of debt if we don’t use them carefully.
The scary thing is, credit card debts tend to grow out of control if you don’t settle them in full due to the high interests charged on your debts. If we don’t do anything about it or procrastinate by making do with paying only the minimum amount, we could reach a point where we accumulate so much debt that it is impossible for us to ever repay in full without a miracle or a huge windfall.
Being A Guarantor
Most of us might never expect this, but many people actually end up owing a large sum of money to banks for a loan that they never took.
Being a guarantor to a friend or a relative has huge repercussions if the person taking the loan defaults on the loan. We would need to assume the full amount of their debt just because we agreed to be their guarantor.
So, What Can Banks Do?
If we are ever unfortunate enough to end up owing an amount to banks that we cannot afford to repay, banks would be entitled to take a series of legal actions against us.
Rather than finding out the hard way, perhaps it’s best to know what the repercussions might be so we can take steps to ensure that we never find ourselves in those situations.
Foreclose Your Property
If you default on your housing loan repayments, the bank will have the right to foreclose your property. That allows the bank to auction off your property and use the sale proceeds to pay off the loan amount that you owe by virtue of the National Land Code of 1965.
The Threshold For Foreclosure
Banks can commence foreclosure proceedings against the borrower if the borrower fails to pay the lending bank the monthly housing loan instalments for four consecutive months.
The Process And Consequences
If you have defaulted on your monthly installments for your housing loan consecutively for more than 4 months, the bank has the right to commence foreclosure proceedings against you by first serving you a “Default Notice” in Form 16D as prescribed in the National Land Code 1965. It is important to note that this notice must be served to you personally.
If nothing is done to settle the loan, the court process to set a reserve price and auction off the property will ensue.
In other words, you would lose your property.
Commence Bankruptcy Proceedings
If it is a personal loan or education loan that you’ve defaulted on, then the bank has the right to commence bankruptcy proceedings against you, force you to liquidate(sell) all your assets to repay the loan. The same applies for credit card debts.
The Threshold For Bankruptcy
In order for the bank to be able to do so, you would need to owe them an amount of more than RM30,000 and be in default for more than 6 months.
The Process And Consequences
If the bank succeeds in making you a bankrupt, all your assets would be frozen, including your bank accounts and shares. They would be liquidated to pay off your debts by the Director General of Insolvency or DGI. As a bankrupt, you will not be able to own any property and face many restrictions in travel and spending.
If your assets aren’t enough to pay off your debts, you might still have to make an arrangement with the help of the courts to set aside a portion of your income to the DGI to repay as much of your debt as possible.
Once you’ve fully repaid your debts, or when your creditors accept your repayment scheme, or after being a bankrupt for 5 years can you apply to the courts to get yourself discharged from bankruptcy. Even then, it is still entirely the discretion of the courts to decide whether you are eligible to be discharged after accessing a number of factors.
In essence, you will be put through a lot of trouble being a bankrupt, and no one would want to be one if they can help it.
Prevention Is Better Than Cure
Hence, to prevent yourself from ever getting into such situations. It is important to always keep an eye on your debts and be financially disciplined.
DollarsandSense is a website that aims to help people make better financial decisions, one interesting bite-sized article at a time. Like us on Facebook to stay in touch with our latest article.
DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.