I think I have posted on our archaic bankruptcy laws more than 4x already over the past 10 years. Our bankruptcy laws are archaic and unnecessarily favors the banks/finance companies. The trouble with our system is that bankruptcy runs in perpetuity (i.e. almost never ending till you die). Unlike in HK, Singapore and many forward-thinking economies where you only have 4 or 5 years to pay down your debt and after that, you are free from the debts.
Why is it so important to implement a limited period for bankruptcy?
1) Being bankrupt means you are also literally removing around 5-8% of the working public and 5-8% of households from participating in the real economy. Cannot do business, cannot get loans, even job hunting may be a problem every now and then.
2) The Malaysian archaic system overly favors the banks and financial lending institutions. When it is in perpetuity, the banks can clamp down on you for the rest of your life. We have to make banks and other lenders also responsible for their part in giving out the loans. Look, even creditors to EU give haircut once Greece is in trouble. That is why banks in Malaysia can be so bloody aggressive with credit cards, they know they have a very long recourse to make your life a living hell.
3) The 250,000 figure (back in 2013, the present figure could be around 300,000) will jump soon. Why? Just look at the way they are dishing out the study loans under PTPTN. Look at the surge in personal loans by non-bank institutions, look at the aggressive credit card schemes. When you give out RM30,000 or RM40,000 or RM50,000 to someone and their job is only likely to pay them RM2,000-2,500 when they graduate, if they graduate, and if they can find a job then, ... you are going to have huge problems. Plus, we haven't got to the credit card users yet.
4) Even people who end up in jail for a few years and come out, they are free ... not if you are a bankrupt, man, they will drag you till you go to your grave.
5) The onus needs to shift back to the banks and other institutional lenders for a more balanced and equitable solution. For far too long have the banks been operating giddily under such a protective umbrella in their favor. There has to be a fairer distribution of risk for lending and borrowing. I am not suggesting that debtors need not pay, I am saying you need to give them a limited timeline.
6) When you take out 5-8% of the household from the real economy in perpetuity, it has a lot of indirect repercussions: cannot get study loans for children, making it very difficult to reverse their position as their job prospects may be affected as some companies frown on their status, etc. Needless to say, this 5-8 % will also NOT play a part in the real economy in an effective manner - talk about dropping an anchor on the economy, it weighs heavily especially if it is in perpetuity.
7) Malaysians have a strong entrepreneurial streak. Our government strongly encourages that. We take on risks to start businesses, invests, etc... I think it is only fair that when things do not work out, we treat those affected with empathy. It is good for the well being of the economy. We need to strike a balance between risk taking and fair accountability. Now it just favors one side of the equation.
To that end, I would suggest making the threshold for making a person bankrupt to be raised to RM50,000, and that automatic cancellation is enforced after 4 years. This is in keeping up with HK and Singapore bankruptcy laws.
From the news article today (The Edge), further points can be made:
- The figure was 250,000 back in 2013 ... now it stood at 303,415. In 6 year the figure has jumped by 21%, that's the most bullish segment of our economy I think. Plus we had a terrible 2018, which is to say the cases would have had another spike over the last 12 months.
- 303,415 cases do not mean 303,415 individuals. Each case will have a trickle-down effect, on his/her family members and people who depend on him/her for financial care. Hence if you just consider 4 family members to a case, we are talking of 1.2 million Malaysians affected directly or indirectly.
A progressive nation and one that cares, must show empathy and afford the many a second chance. Even criminals get a second chance after jail, but for bankrupts, it is in perpetuity. Stop that nonsense already.