Going bankrupt on purpose to avoid high loan repayments

PETALING JAYA: Some individuals are intentionally becoming bankrupt to avoid high loan repayments, opting instead for lower monthly payments set by the insolvency department, according to its director-general, Bakri Majid.

Bakri said this practice allows individuals to evade their financial responsibilities as the department’s monthly contributions are often insufficient to settle the entire debt.

“When a bankruptcy order is declared by the court, the monthly contribution set by the department is far lower compared to the payments they had to make before being declared bankrupt,” he told Berita Harian.

“There are cases where debtors are willing to be declared bankrupt just to pay the minimum amount.”

Bakri said bankruptcy does not significantly impact daily life, and the required monthly contributions are minimal.

“If they meet the conditions and the period set between three and five years, they can be discharged from bankruptcy,” he said.

“In fact, they may even make long-term profits if the loan money is already invested, including buying property under someone else’s name.”

Bakri said the monthly contribution amount is based on the individual’s ability to repay, not the total debt owed.

He cited a case where a government officer in a lower grade declared bankruptcy after taking out a large loan beyond his means. The officer was assigned a monthly contribution of only RM200.

“We were puzzled at how a Grade 29 staff member obtained a loan of more than RM700,000 and then declared bankrupt after failing to repay it, eventually losing his job,” he said.

“The money from the loan may have been saved or invested under someone else’s name. We believe this is an example of a bankrupt individual using tactics to avoid making large payments to creditors.”

Bakri attributed the issue to lenient loan conditions and a lack of financial management knowledge among debtors.

He urged financial institutions to be stricter in reviewing loan applications to ensure only eligible individuals receive loans.

He emphasised that the insolvency department must balance protecting the rights of bankrupt individuals with safeguarding the interests of creditors.

Bakri said the department will take legal action against individuals who conceal assets or income that should be declared in their income and expenditure statements.