Bankruptcy statistic is just the tip of the iceberg

The Consumers Association of Penang (CAP) said the recent bankruptcy statistics only reveal the tip of the iceberg.

The Malaysian Insolvency Department released the bankruptcy data from January to July 2022.

The data show figures after the Insolvency (Amendment) Act 2020 amendment took effect on 1 September 2021.

The bankruptcy threshold was RM50,000 before the amendment.

It means that if the debt does not exceed RM100,000, the creditor cannot file for bankruptcy action.

The CAP said it is difficult to determine the number of debtors who owe amounts less than RM100,000.

They have to reach out to the Credit Counselling and Debt Management Agency (AKPK), under the purview of Bank Negara Malaysia, for such data.

The CAP said an average of 18 people of all ages declared bankrupt daily in the first five months of 2022.

A debt of even a few thousand ringgit is challenging to manage because a loan default will result in mounting interest.

And, in times of economic uncertainties, it is even more challenging.

The government increased the threshold during the pandemic to delay legal actions.

However, the question remains on how the government will track the cases below the threshold.

Therefore, CAP suggests promoting AKPK by reaching out to these people to assist them in managing their debt.

AKPK undertakes credit counselling and loan restructuring for individuals.

Statistics show that people aged 25 and below are becoming bankrupt.

However, there was a downward trend from 139 in 2018, 54 (2019); 21 (2020); 20 (2021); and 5 (January-April 2022).

The decreasing trend in 2022 for those aged 25 and below is primarily due to the increment of the bankruptcy threshold.

We will never know the number of debtors struggling below this bankruptcy threshold of RM100,000.

They might be 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 are between 25 and 44.

It is an age when they are in the prime of life, trying to build a career and having to rebuild their credit and secure loans.

CAP also said that people have to understand that no company or financial institution will forget a debt owed to them.

It will haunt the debtor even a few years later with added interest.

CAP advises those unable to service a loan to try prioritising their repayment or seek advice from AKPK for possible solutions.

Failing to update the latest contact details is another reason for the bankruptcy filing, said CAP.

When default, the borrowers never receive the legal notice until it is too late.

CAP also urge people to take their loan issues seriously. Above all, they should practice thrift and avoid unnecessary spending.