Higher threshold is worrying

THE Consumers Association of Penang (CAP) is concerned that the January to April 2022 bankruptcy statistics revealed recently are just the tip of an iceberg of bankruptcy in this country.

This is because of the Insolvency (Amendment) Act 2020 that took effect on Sept 1, 2021. With the amendment, a creditor may file for bankruptcy action against a debtor if the debt amounts to RM100,000. Previously, the threshold was RM50,000. This means that if a debt does not exceed RM100,000, the creditor is unable to file a bankruptcy action.

It is difficult to determine the number of debtors who owe amounts less than RM100,000 unless they reach out to agencies such as the Credit Counselling and Debt Management Agency (AKPK in Malay) 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 single payment default will result in mounting interest – and in times of economic uncertainty like now, it is even tougher.

The government’s reason for increasing the bankruptcy threshold during the Covid-19 pandemic that began in 2020 was to delay legal actions against defaulters.

Our question is, how is the government going to monitor cases that are below the bankruptcy threshold? After all, the objective is to reach out to these people and to assist them in managing their debt by promoting AKPK, which undertakes credit counselling and loan restructuring for individuals.

Statistics show that there are people aged 25 and below going bankrupt. However, there has been a downward trend in the number of such bankruptcies, from 139 in 2018, 54 in 2019, 21 in 2020, 20 in 2021 to five in January-April 2022. But the decrease could be due to the bankruptcy threshold being raised from RM50,000 to RM100,000. An average of 18 people of all ages were declared bankrupt daily in the first five months of 2022.

We will never know the actual number of debtors who are struggling below the new bankruptcy threshold of RM100,000, just waiting for their accumulating interest to push them past that figure.

The other apprehension we have is that about half of those who became bankrupt in 2022 were aged between 25 and 44 – this is the time they are in the prime of life, trying to build a career, and also having to rebuild their credit and secure loans.

People have to understand that no company or financial institution can forget a debt owed to them and it is going to haunt the debtor even years later and with added interest to pay off too. We advise people who are unable to service a loan because of unforeseen circumstances to try prioritising their loan repayment or otherwise seek advice from AKPK for possible solutions.

The other common problem CAP has heard about is people failing to update their correspondence address and contact information with the financial institution from which they took their loan. When they default on the repayment of their housing loans, for example, the financial institution might send them legal notices that they don’t receive until it is too late.

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

MOHIDEEN ABDUL KADER

President

Consumers Association of Penang (CAP)