RAISING Malaysia’s bankruptcy threshold from RM100,000 to RM150,000 will give financially distressed borrowers greater breathing room, but it should not be mistaken for a solution to their debt problems, says Wanita MCA national deputy chairperson Tee Hooi Ling.
The increase, announced under Budget 2027, will take effect in 2027. The government has also pledged to expand its Second Chance Policy to cover primary caregivers of family members with disabilities, chronic illnesses and the elderly, as well as gig workers and those with irregular incomes.
It will also strengthen provisions allowing eligible bankrupt individuals to obtain automatic discharge as early as three years under the Insolvency Act 1967.
Tee said the higher threshold should be viewed as relief for people facing financial difficulties, rather than permission to borrow beyond their means.
“As financial experts have highlighted, the real measure of success lies in whether borrowers can rehabilitate their finances and regain economic independence, not merely in having fewer bankruptcy cases,” she remarked.
Under Malaysia’s current framework, bankruptcy proceedings against an individual generally require a creditor’s petition involving a judgment debt of at least RM100,000 and a court order.
Bankruptcy can have significant consequences, including restrictions on certain financial and professional activities.
“Loan applicants need to think carefully before taking personal loans, signing car hire-purchase agreements or committing to housing loans,” she stressed.
“Financial literacy goes beyond knowing how to borrow. It involves understanding interest charges, assessing repayment capacity, budgeting responsibly and preparing for unexpected expenses.”
She cautioned that stronger protection against bankruptcy should not encourage irresponsible borrowing or neglected repayments.
Borrowers must honour their commitments, while financial institutions deserve fair protection for legitimate debts owed to them.
For those already experiencing financial hardship, Tee said early intervention was essential to prevent arrears from escalating.
“The Credit Counselling and Debt Management Agency (AKPK) can play a greater role in providing financial counselling and debt-management assistance before arrears spiral out of control,” she remarked.
“Financial institutions also have a responsibility to practise responsible lending and offer reasonable restructuring options where appropriate.”
However, Tee warned that restructuring a loan does not eliminate the underlying debt. Extending the repayment period may reduce monthly instalments, but can increase the total interest or financing charges paid over the life of the loan.
Borrowers should therefore receive clear explanations of their outstanding principal, additional charges, revised repayment period and total amount payable before agreeing to new terms, she said.
Tee said the government, financial institutions and borrowers all had a role to play in addressing household debt.
The government should strengthen financial education and rehabilitation programmes, while banks should adopt fair lending and recovery practices.
Borrowers, in turn, must remain disciplined in managing their finances and meeting repayment obligations.
“The objective is not simply to keep Malaysians out of bankruptcy, but to help them achieve lasting financial stability without unfairly transferring the burden to creditors,” she added. ‒ Oct 12, 2026
Main image: Pexels/Mikhail Nilov
