GEORGE TOWN: The Consumers' Association of Penang (CAP) has urged Malaysians to take their loan issues seriously.

Expressing concern, CAP president Mohideen Abdul Kader said the bankruptcy statistics from January to April 2022 which were revealed recently were just the "tip of the iceberg" because of the Insolvency (Amendment) Act 2020 that took effect on Sept 1, last year.

With the amendment, a creditor may file for bankruptcy action against the debtor if the debt amounts to RM100,000. The bankruptcy threshold was RM50,000 before the amendment.

Mohideen said it was difficult to determine the number of debtors who owed amounts anywhere less than RM100,000 unless they reached out to agencies such as the Credit Counselling and Debt Management (CCDM) Agency, which is under the purview of Bank Negara Malaysia. 

"As it is commonly known that a debt of even a few thousand ringgit is difficult to manage because a loan default will result in mounting interest, and in times of economic uncertainties, it is even tougher.

"The government's reason to increase the bankruptcy threshold during the pandemic is to delay legal actions against defaulters.

"Our question is, how is the government going to monitor the cases that are below the bankruptcy threshold?

"The objective is to reach out to these people and assist them in managing their debt by promoting CCDM which undertakes credit counselling and loan restructuring for individuals," he said today.

Mohideen said statistics showed there were people aged 25 and below being made bankrupt.

He, however, said there was a downward trend from 139 in 2018 to 54 (2019); 21 (2020); 20 (2021); and five in January to April this year.

"Even if there is a decreasing trend in 2022 for those aged 25 and below, it is probably linked to the increment of the bankruptcy threshold.

"An average of 18 people of all ages were declared bankrupt daily in the first five months of 2022.

"We will never know the actual number of debtors who are struggling below this bankruptcy threshold of RM100,000, just waiting for their accumulating interest to push them past that threshold," he added.

Mohideen said the other apprehension was that about half of those who became bankrupt in 2022 were aged between 25 and 44, when they were in the prime of life, trying to build a career, and now having to rebuild their credit and attempt to secure loans.

He noted that people had to understand that no company or financial institution could likely forget a debt owed to them and it was going to haunt the debtor even a few years later with added interest.

"We advise people who are unable to service a loan because of unforeseen circumstances to try prioritising their loan repayment or otherwise seek advice from CCDM for possible solutions.

"The other common problem CAP has received is people failing to update their current correspondence address and contact information with the financial institution where they took their loan.

"When they default in the repayment of their housing loans, for example, the financial institution might send them legal notices that they never receive until it is too late.

"We, therefore, urge people to take their loans seriously. Above all, they should practise thrift and avoid unnecessary spending," he stressed.