Malaysia - Driven to bankruptcy

Easy-to-get car loans have driven more Malaysians into bankruptcy, with the numbers soaring, especially in the last six years.

Of the more than 100,000 people declared bankrupt between 2005 and September this year, 25 per cent comprised those who had defaulted on their car loans.

An upset Insolvency Department directorgeneral Datuk Abdul Karim Abdul Jalil wants financial institutions to be more stringent in approving car loan applications.

Concerned over the easy availability of this credit facility, he said banks must review their policies to prevent more borrowers, especially the younger generation, from falling into the debt trap and, eventually, bankruptcy.

Karim said statistics showed that those who defaulted on car loans continued to top the list of bankrupts.

He said 25 per cent of the 105,519 people declared bankrupt over the last six years had defaulted on their car loans.

Last year, 5,639 borrowers were made bankrupt after they failed to service their car loans. In the first nine months of this year, the number was close to 4,000.

Of the 3,260 civil servants declared bankrupt since 2005, the majority were also car loan defaulters.

"It is so easy to buy a car now. Car dealers and some financial institutions offer such attractive deals that often, buyers do not even have to put up a deposit or down payment to secure a loan.

"This has attracted many young people to buy vehicles on hire purchase, only to find that they are unable to service the loans," Karim said.

He called on financial institutions to review their policy of giving out and recovering vehicle loans so that borrowers did not end up as bankrupts.

"They must be better gatekeepers to ensure that only those who meet the criteria qualify for the loans. In genuine cases where the borrowers are unable to service the loans because of circumstances beyond their control, banks should exercise flexibility and give the borrowers ample time before instituting bankruptcy proceedings.

"Don't be too rigid. If he is willing to make some form of payment, use your discretion. Give him time to pay. Don't go and kill the fellow with a bankruptcy notice. If you make him a bankrupt, you may not get anything. Filing for bankruptcy should be the last resort."

He said the department was looking at tightening the existing laws pertaining to insolvency and bankruptcy to protect the interests of debtors and creditors.

Karim said many borrowers who bought cars on hire purchase were also unaware that the ownership of the vehicle lay with the financial institution until full settlement of the loans.

"When they can't meet the monthly payments, they 'sell' the car to a third party, hoping that the latter will continue servicing the loan. But when the third party defaults on the loan, the borrower is slapped with a bankruptcy notice."

Next to car loans, defaults on personal and housing loans were also high on the list.

Karim said there was a substantial number of cases where people allowed their friends or acquaintances to use their particulars to obtain a loan.

"And when these friends default on the loan, they end up being declared a bankrupt.

Under the Hire Purchase Act 1967, financial institutions can repossess the vehicle of a borrower who defaults on the loan for three consecutive months.

The vehicle will then be sold to recover the debt and if the amount that is still owing is more than RM30,000 (S$12,000), the financial institution can file a bankruptcy petition against the debtor.

P. Selvarani

New Straits Times

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