KUALA LUMPUR — Every financial decision Mohd Samran (not
his real name) ever made had been well-scrutinised. He believed in avoiding the
pitfalls of accumulated debts.

Although he held a high position in a company, he was frugal
in his spending. He did not believe in spending outside his means.

However, despite his cautious financial habits and thrifty
lifestyle he was declared bankrupt six years ago.

It was all due to his becoming a guarantor to his nephew’s
wife, who failed to service her loan.

Another victim of similar circumstances was Fakhrul (not his
real name). He had been cheated by his business partner and was declared
bankrupt as a result.

Both victims have now found themselves bound and shackled by
bankruptcy at a young age – not because of irresponsible spending, but because
they had misplaced their trust.

NO GOOD DEED GOES UNPUNISHED

What happened to Mohd Samran and Fakhrul are only among the
many cases of fraud and good intentions gone awry that lead victims into the
black hole of bankruptcy.

Borrowers who fail to service their loan often land their
guarantors in hot soup.

Many may blame the victim for taking the risk of becoming a
guarantor in the first place. However, the situation is not always clear-cut.
The victim may have been emotionally blackmailed into the position due to
kinship or prior agreements.

Whatever the reasons may be, becoming social guarantors is a
serious gamble for many people.

Social guarantors make up the fifth highest number of people
declared bankrupt in Malaysia, as 5,781 of the 116,488 declared bankrupts based
on records from 2007 to September 2013.

It is a raw deal for these people who have to unfairly carry
the burden of debt of another.

GOVERNMENT HELP

The Prime Minister Datuk Seri Najib Tun Razak acknowledged
their situation during his winding up speech on the last day of the 2012 Umno
General Assembly.

He said the government would come up with a new legislation
because the current bankruptcy laws were deemed too strict.

“We will find ways to help the affected individuals but
not all of them as some owe millions. We will help where we can.

“Sometimes they are declared bankrupt through no fault
of their own, but by becoming guarantors,” Najib was quoted as saying in a
news report.

Other causes of bankruptcy are vehicle hire-purchase (26.14
percent), housing loans (17.62 percent), personal loans (15.5 percent) and
business loans (12.39 percent).

STIGMA

Life as a bankrupt is no bed of roses. In addition to social
stigma, they are also denied of many facilities and privileges.

“A bankrupt can lose his right to do many things, such
as becoming a member of Parliament.

“They would also be prevented from leaving the country,
except with the permission of the Insolvency Director General,” said Lim
Kui Lee, the Insolvency Director of the Bankruptcy Division, to Bernama.

Information on the Malaysia Department of Insolvency website
revealed that all of the assets and properties of the bankrupt will be vested upon
the Insolvency Director General, as stipulated under section 24 (4) of the
Bankruptcy Act 1967.

Once a person is declared bankrupt, his/her existing account
would be deactivated. However, the person may open a new account or continue
using his existing account for reasons such as crediting salaries with the
permission of the Insolvency Director General.

Bankrupts are also barred from working in the company
belonging to a spouse, children or relative or enter into any business alone or
in partnership without the permission of the Insolvency Director General or the
court.

THE NEED FOR A NEW ACT

The implications of bankruptcy on a person could be severely
unjust, especially if they were victims of circumstances.

Cognisant of this, the Malaysian Muslim Consumers
Association (PPIM) formed the Bankruptcy-Free Secretariat to help those
declared bankrupt due to technicalities, scams or due to being social
guarantors.

The secretariat chairman Datuk Sohaimi Shahadan said there
was a need to review the Bankruptcy Act 1967 as many of the laws were now seen
as irrelevant.

Under the current act, victims of fraud where their
signatures are forged or identity cards stolen, could also find themselves
bankrupt.

In light of that, the secretariat came up with several
proposals to be forwarded to the government in overhauling the law.

This includes doing away with the guarantor system in all
loans and allowing for current guarantors to withdraw themselves from the
contract.

AUTOMATIC DISCHARGE

The Bankruptcy Act 1967 is currently under legal reform to
allow for easier discharge of bankrupts.

Minister in the Prime Minister’s Department Nancy Shukri was
quoted as saying that the draft of the bankruptcy bill has been forwarded to
the Attorney General’s Chambers.

“The Bankruptcy Act 1967 is too outdated and will be
replaced with a new act which will include, among others, automatic discharge
of bankrupts.

“As for the allowance for discharge, among the
allowances proposed is for automatic discharge after a case has been adjudged,
in a specified period of time,” she said.

Based on the current act, there are three ways a bankrupt
can be released from bankruptcy status, which is by discharge through a court
order, with a discharge certificate from the Insolvency Director General or by
annulment through a court order.

“We ask for those who fulfill the set criteria and are
consistent in their monthly payment to the department to be discharged
automatically after three years. This would help young bankrupts, such as
entrepreneurs, get a second chance,” said Sohaimi.

The current act is deemed too stringent as an individual can
be declared a bankrupt if his debt reaches RM30,000. The secretariat is
proposing that the bankruptcy threshold to be raised to at least RM100,000, he
said.

The new act is a much-anticipated one for some 251,209
bankrupts (data from 1924 to September 2013), as its implications would
understandably be life-changing