How Do You Survive From Bankruptcy?
If you are one of the unfortunate bankrupts in Malaysia, this is not the end of the world. Some even find relief from declaring bankruptcy since they can get proper help from the authorities such as The Credit Counselling and Debt Management Agency (AKPK) and own up the responsibilities to repay their debts under the governance of the Director General of Insolvency (DGI).
There are a few questions you might be asking when you are declared bankrupt. For starters, what will happen to your assets and property if you become bankrupt?
Well, when a person becomes bankrupt, his/her assets will be placed in the hands of the DGI. The DGI will then administer the bankrupt’s assets and sell or dispose them to repay the outstanding debts.
Business bankruptcy is not the same as individual bankruptcy
Before going into details on how to survive bankruptcy, let’s get one thing clear. A bankrupt business and bankrupt individual are two entirely different things.
A private limited company (Syarikat Sendirian Berhad) is by definition, a separate legal entity from the owner of the company. This means the debts incurred by the company are completely not liable on the owner of the company and does not even affect the owner’s credit score.
For example, say you own 100% of Kaki Lima Sdn. Bhd., a logistics company. After 15 years of business, things went downhill and the company owes a whopping RM12 million. If you declare the company bankrupt, the banks that loaned money to the company, and the investors who bought S$3 million worth of corporate bonds won’t be getting their repayments, the airline companies that provided the planes won’t be paid, and so forth.
However, this does not affect the owner at all. This is why some infamous rich people (no fingers pointed) have cheated their way out of this mess: they set up a company using borrowed money, pay themselves a high salary, and then allow the company to go bankrupt.
How you can recover from bankruptcy
Three main ways how a bankrupt can be discharged from bankruptcy status:
- Apply for the Court’s order to be void – The Court will grant an annulment of the bankruptcy order given they are of the view that the bankrupt should not have been deemed as a bankrupt or where the debts of the bankrupt have been paid in full.
- Apply for a court discharge – The Bankrupt must get a report from the Insolvency Department emphasizing the conduct and the cooperation of the bankrupt. Only the people with a good conduct record are eligible to apply for a court discharge.
- Apply to the DGI – This application can only be made if 5 years has elapsed from the date the bankruptcy order was made. This is up to the discretion of the DGI and they will take into consideration various factors such as the cause of bankruptcy, the age of the bankrupt, assets of the bankrupt, and his conduct.
Good conduct means:
- Good co-operation as and when required by any officer of Malaysia Department of Insolvency (MDI).
- Upon being adjudged a bankrupt, he will attend to the MDI’s office immediately when required to do so.
- Have submitted a complete Statement of Affairs within a stipulated time given by MDI.
- Regularity in making payments or monthly contribution.
- Compliance with the DGI’s and Court order.
- Compliance with all the restrictions under section 38 of Bankruptcy Act 1967.
- Submitting an Income and Expenditure Statements every six months.
- Informing the Department of any changes of address and income.
- Did not make any direct payment to the creditors.
- Declaration of the dividend.
Some may ask that if he or she inherited an amount of money after they were declared bankrupt, will they be able to make direct payment to settle the debt. The answer is, a bankrupt is not allowed to make direct payment to the creditor and all payment has to be made through the DGI.
With that, the payment made by the bankrupt will be credited into the estate account by the DGI and distributed to the creditors who have filed in Proof of Debt according to priority.
Some people may even try to transfer their property to spouses or family members to save their assets. However, under the Bankruptcy Act, any settlement or transfer of property shall be void against the DGI if the settler becomes a bankrupt within 2 years after the date of settlement.
This means if the settler becomes bankrupt within 5 years after the date of settlement, the settlement or transfer of property will be void unless the parties can show that the settler was able to pay all his debts at the time of making the settlement without the aid of the property.
Nonetheless, there are two exceptions to this situation where:
- The settlement was made before or in consideration of marriage.
- If the settlement was made to a purchaser in good faith and for valuable consideration.
According to Malaysia Financial Planning Council (MFPC)’s certified trainer, Desmond Chong, each bankrupt is subjected to submit annual account details to the DGI and the latter will advise the former on expenses, income, and debt repayment accordingly.
Though it may differ accordingly across cases, there are some ground rules you need to comply with during the entire period under bankruptcy status.
Things you will need to comply with when you are bankrupt
- You will need to surrender your passport. However, you may still apply to travel overseas under special circumstances (eg: medical condition, performing haj etc).
- You are disqualified from being a director of a company or corporation and you cannot engage in the management of any business or trade run by your spouse, children or relatives.
- You can only open a bank account with the approval of the Official Assignee for crediting your monthly income.
- The Insolvency Department will administer all your assets, trace and monitor your conduct. You need to submit an account of your income and expenditure once every six months and report all monies or property exceeding RM500 that comes into your possession.
- You cannot commence any legal proceedings (other than an action for damages relating to personal injury) without the sanction of the DGI.
- You cannot be appointed as a Sessions Judge or Magistrate, be nominated or elected for the office of councilor of the local authority, be a trustee under any written law, or be a member of parliament.
- The court may order you to pay part of your wages or income to the DGI.
- You can only use your credit card up to a value of RM1,000.
Since Malaysian law doesn’t allow automatic discharge of bankruptcy, bankrupt has to make an application to be discharged. However, it is still the best option for you to avoid bankruptcy in the first place by recognising the red flags and also leverage on the best debt consolidation personal loan.