THE growing trend of individuals voluntarily declaring themselves bankrupt in Malaysia has become a significant concern, reflecting the financial struggles many are facing in the country.
In a recent statement, Director-General of the Insolvency Department Datuk M Bakri Abd Majid revealed a sharp 200 percent increase in self-declared bankruptcy cases over the past year.
In 2024 alone, 330 individuals filed for bankruptcy under the Debtor’s Petition process, a legal method through which individuals can apply to declare bankruptcy to protect themselves from mounting creditor claims.
This was a significant rise from 181 cases in 2023 and just 116 cases in 2022.
In a commentary Mohd Ashraf Syafiq Mazlan, published by Bernama, M Bakri was cited saying: “We are seeing a rise in individuals declaring bankruptcy as they feel unable to repay their debts.”
“Some may even choose this route to reduce their financial obligations. For example, a borrower who is paying RM2,000 a month in debt repayments may expect to pay only RM200 after being declared bankrupt.”
The alarming rise in self-declared bankruptcies has prompted the Insolvency Department to review the Debtor’s Petition process to prevent misuse.
The current system, M Bakri explained, lacks a minimum debt threshold, allowing individuals to file for bankruptcy even with relatively low amounts of debt.
“Under the Debtor’s Petition process, individuals can apply to declare bankruptcy without a minimum debt requirement. They simply need to fill out the necessary paperwork and pay a deposit,” he explained.
“In contrast, the Creditor’s Petition requires the debt to exceed RM100,000, and only creditors can initiate bankruptcy proceedings in that case.”
The director-general also expressed concerns that the government's Second Chance Policy, which was introduced to help individuals regain financial stability after bankruptcy, could be exploited if the trend of self-declared bankruptcies continues unchecked.
This policy allows individuals who declare bankruptcy to be discharged from their status within three years, provided they make minimal payments.
“I’m worried that some individuals may take advantage of the system,” M Bakri warned.
“They could file for bankruptcy under a Debtor’s Petition, knowing they can be discharged within three years through the Second Chance Policy with minimal payments.”
The Second Chance Policy, part of the MADANI government’s efforts to assist those burdened with smaller-scale debts, has already seen considerable success.
Between March 2023 and December 2024, 176,851 bankruptcies were discharged under the policy—well beyond the initial target of 130,000 cases.
M Bakri revealed that the Insolvency Department is now working to extend the Second Chance Policy to bankrupt companies, helping them recover from financial distress.
“We are identifying eligible businesses to include in this initiative,” he said.
Prime Minister Datuk Seri Anwar Ibrahim had earlier announced the government’s intention to expand the Second Chance Policy to assist bankrupt companies, further highlighting the government's commitment to aiding both individuals and businesses facing financial hardship. – March 30, 2025
