PUTRAJAYA: The Insolvency Department has uncovered individuals who are deliberately declaring bankruptcy to avoid financial burdens arising from substantial debts.
Its director-general, Datuk M. Bakri Abd Majid said this tactic is being used to bypass high loan repayment obligations imposed by financial institutions or creditors, opting instead for significantly lower monthly payments to the department, which are determined based on the bankrupt individual's ability to pay.
He however said that the department determines monthly contributions based on the actual capacity of bankrupt individuals, not the total claims filed by creditors.
He also acknowledged that in cases of substantial debts, the low monthly contributions set by MDI are often insufficient to settle the full amount owed.
"This creates opportunities for abuse of the bankruptcy system by individuals seeking to avoid their financial responsibilities."
He said that bankruptcy should function as a mechanism to assist individuals in financial distress, rather than a loophole to evade debt repayment.
"There have been instances where debtors willingly accept bankruptcy to pay minimal amounts. When the court declares them bankrupt, the monthly contributions set by MDI are significantly lower than the loan repayments they were previously obligated to make," he said.
Bakri added that this manipulation of the bankruptcy system is employed by certain parties to escape substantial debts and financial burdens.
"To prevent losses from unpaid debts after a borrower is declared bankrupt, financial institutions must adopt stricter screening processes for loan applications and ensure only eligible individuals receive credit facilities to avoid future abuse," he said.
Bakri cited a case involving a low-ranking civil servant who took out loans totalling almost RM1 million and was later declared bankrupt after failing to repay.
"The individual was subsequently required to pay only RM200 per month as a contribution to MDI. The individual had secured multiple large-scale loans far exceeding their eligibility, possibly with the assistance of certain parties.
"It's puzzling how a Grade 29 civil servant was approved for loans exceeding RM700,000, only to be declared bankrupt after failing to make repayments and subsequently losing their job.
"The borrowed funds may have been invested or saved elsewhere under another name. Once the case is administered by MDI, the individual only needs to pay RM200 monthly, demonstrating how the system can be exploited to avoid repaying creditors," Bakri said.
He pointed out that many individuals are aware that the consequences of bankruptcy do not significantly disrupt daily life.
Bakri also said the minimum contributions required by MDI, along with the possibility of being discharged from bankruptcy after three to five years if conditions are met, make the system more appealing for exploitation.
Bakri added that the lenient loan approval criteria of financial institutions and a lack of financial literacy among borrowers often lead individuals to accumulate serious debts, ultimately resulting in bankruptcy.
"Securing personal loans is now relatively easy, making it particularly enticing for younger individuals who may eventually find themselves trapped in debt and face bankruptcy," he said.
Financial institutions, he advised, should adopt measures to prevent such scenarios from being exploited by borrowers in the future.
Meanwhile, Bakri reiterated that MDI is committed to ensuring the proper administration of bankruptcy cases according to the law, while also safeguarding the rights of bankrupt individuals and creditors.
He warned that action would be taken against bankrupt individuals who hide information about assets or income that should be declared in their six-month income and expenditure statements to determine monthly contributions.
MDI will manage and liquidate assets belonging to bankrupt individuals to benefit the creditors who filed the claims," Bakri said.