Bankruptcy is a much feared word. But the director-general of the Department of Insolvency, Datuk Abdul Karim Abdul Jalil, tells P. Selvarani that all is not lost
Question: Has there been an increase in the number of people declared bankrupt over the past few years?
Answer: Yes. To date,we have 234,762 bankrupts. Of the number, 105,519 were declared bankrupt between 2005 and September this year.
Question: Who are these bankrupts?
Answer: For the majority (48 per cent), we have not been able to ascertain their profession but private sector employees make up the second largest number at 21 per cent while businessmen make up 11.35 per cent. The rest include the self-employed (8.91 per cent), professionals (3.37 per cent), civil servants (3.16 per cent), the unemployed (3.04 per cent), pensioners (0.81 per cent), those in the entertainment sector (0.30 per cent), students (0.13 per cent) and sports personalities (0.08 per cent).
Question: Why were they declared bankrupt?
Answer: In the majority of cases, they have defaulted on their payments, especially vehicle loans, personal loans and housing loans. It has become so easy to get a loan now, especially car loans.
Car dealers and financial institutions offer such attractive deals that buyers do not even have to put down a deposit to secure a loan. But some of these borrowers do not have the financial means to service the loans. So, when they are unable to make payments after some time, the banks can repossess the car and institute bankruptcy proceedings to recover the loans.
In other cases, people are made bankrupt because of circumstances beyond their control. For example, businessmen who are forced out of business because of the financial crisis.
Question: Who institutes the bankruptcy proceedings?
Answer: The common misconception the public has is that we make people bankrupts. That is not true. The people who institute the bankruptcy proceedings are the creditors, such as the financial institutions and suppliers.
We are the third party between the creditors and the debtor and we administer the assets of the bankrupt in order to fairly distribute them among his creditors.
Question: How does a creditor file a bankruptcy petition?
Answer: The debtor must have committed any of the 10 acts of bankruptcy.
In 99.5 per cent of the cases, the act of bankruptcy that’s used by creditors is non-compliance with a bankruptcy notice. So when a debtor defaults on his loan, the bank would wait two or three months before serving notice. If after a few months the debtor still does not comply, the bank initiates court action.
Once they get the judgment, they will issue a bankruptcy notice and the sum owed should not be less than RM30,000. The debtor is given seven days to comply with the bankruptcy notice. If he fails to comply or challenge it within six months, the creditors have the right to file a bankruptcy petition. Under the law, the petition must be served personally to the bankrupt or through substituted service (eg, placing advertisements in newspapers) when the debtor cannot be located.
The majority of them are adjudged bankrupt based on substituted service. This is one area we need to address. Often, people don’t update their addresses and fail to respond to notices. Then they challenge (the bankruptcy order) only after everything has been dealt with.
Question: Do you have a major problem locating these bankrupts?
Answer: Yes. And this makes it extremely difficult for us to monitor the conduct of the bankrupts and recover their assets. We have to rely on the cooperation of the petitioners, the creditors and other departments such as the National Registration Department and the Inland Revenue Board to give us the information we need.
The law says that when a petition is filed by any creditor, the petitioner must use the most recent address of the debtor, not an address given 10 or 20 years ago. The problem is most of the petitions in our records cannot be served personally because the address is not the most recent one.
If the petitioner cannot find them, how do you expect us to find them with our limited manpower? And because of this, we have not been able to close thousands of cases.
Question: What happens when a person is declared a bankrupt?
Answer: Once you become a bankrupt, your property is automatically divested to us, except if you are holding property in trust for others. You are only allowed to keep the tools of your trade, your apparel and bedding and other necessities with a total value of not more than RM5,000.
You are not free to enter into any financial transaction, you are not free to work in certain sectors or jobs, you are barred from holding certain positions. You cannot travel overseas.
Your whole lifestyle changes. In fact, if we follow the law strictly, we can scrape your house clean. But we don’t do that. That’s why we say if you are working, just pay us a certain percentage.
You have a duty to disclose your assets to us and discuss with us how to settle your debts. But some people don’t bother to pay. We have been very kind and fair and they say we are very cruel and unfair.
Question: How can your department save the bankrupt?
Answer: We can help him if the petitioner applies to the court for a receiving order and we are appointed as the receiver. The bankrupt has a duty to inform us of his assets and liabilities.
We will then take care of his assets and help him settle his debt to his creditor. And in doing so, we have a duty to ensure that there is enough money for his survival.
But if bankrupts do not come to our department to discuss with us or if they do not want to comply with our instructions, can they then blame us if the law takes it course?
Some debtors try to negotiate a deal and offer to pay in small amounts but the creditors say ‘no, I want upfront 50 per cent and every month RM5,000’.
The debtor can barely survive, so how is he going to make these payments? The bank says if you cannot pay, sorry, I have to declare you a bankrupt. That’s why the petitions (for bankruptcy) keep increasing. When you declare him a bankrupt, you kill him straightaway.
Question: Some people have this notion that bankruptcy is for life. Can a bankrupt have his bankruptcy annulled?
Answer: Previously, you can only be released if you have paid your debt in full or if you were wrongly declared a bankrupt.
But if you religiously pay your debts, then we may push for your discharge from bankruptcy.
Question: So, there is life after bankruptcy?
Answer: Yes. Do you know that people like (president Dwight D.) Eisenhower and Donald Trump were bankrupts before? We have rescued many people. This is especially so for professionals like doctors, lawyers and architects who are barred from practising. That is their main source of income, so in some cases, we allow them to work in a different capacity so that they can pay their debtors.