LIFTING the minimum debt threshold for the presentation of a bankruptcy petition will not solve the problem of a growing number of young people filing for insolvency, financial experts said.

They were responding to Prime Minister Ismail Sabri Yaakob’s comment that Putrajaya was reviewing the bankruptcy threshold due to the increasing number of insolvency among youth.

The Malaysian Department of Insolvency (MDI) reported that since the beginning of the year till March,  287,411 people have been declared bankrupt.

Malaysian Financial Planning Council deputy president Desmond Chong Kok Fei said data from the last three years showed a worrying trend.

“It is concerning that young people are going bankrupt despite the various forms of government aid that were introduced during the Covid-19 pandemic,” Chong told The Malaysian Insight.

According to the MDI, most of those who declared bankruptcy had failed to pay their loans.

The MDI said Selangor recorded the highest number of bankruptcy cases with 71,659, followed by Kuala Lumpur with 45,630.

Data showed private sector workers and businessmen between the ages of 35 and 44 made up the bulk of the insolvency cases.

In the last two years, Putrajaya has introduced various stimulus packages to revive the economy and help the lowe- income group.

It also allowed early withdrawals from the Employees Provident Fund (EPF) via the i-Sinar, the i-Citra and the i-Lestari programmes.

A six-month moratorium was also introduced for loan repayments.

Phillip Capital Management Sdn Bhd chief strategist Phua Lee Kirk said if the government increases the bankruptcy threshold, young people will still file for insolvency daily.

“The economy has not recovered; this means there are very few job and income opportunities. Companies will also not raise wages,” Phua said.

He said those who had saved in the last two years will see their savings depleted.

On top of everything else, people now have to contend with soaring inflation, he said.

“The central bank increasing the overnight policy rate by 25 points to 2% is another blow.”

Even if the government decides to hand out more aid, it still won’t solve the high cost of living problem, he said.

“You cannot have a single solution to bankruptcy as the problem is multi-pronged,” he said.

However, Phua said raising the bankruptcy threshold is a good thing as it is currently too low.

Wong Chin Yoong, economics professor at Universiti Tunku Abdul Rahman, said a higher threshold is merely a stop-gap measure.

“Increasing the threshold merely means that people accumulate more debts, but there is no solution to how they will repay them,” Wong said.

He said the authorities must first understand why this problem exists before they can come up with an effective solution.

“The data shows that the common reason for bankruptcy is personal and car loans.

“So we must ask why are there so many loans? Is it easier now to obtain a loan? We must also look into peer-to-peer lending platforms; are the conditions too lenient?”

Wong said should Bank Negara raise the overnight policy rate again, more bankruptcy cases would follow as lending would rise and people’s ability to repay would be reduced.

“Perhaps regulations around lending should be tightened. But if we do that, will people then turn to illegal money lenders? This has to be considered.

“We have to raise the public’s financial awareness.”

Chong Kok Fee, an adjunct professor at Taylor’s University, said increasing the threshold will affect three groups.

“Firstly, it may lead to more first-time lenders as the threshold is now higher. Secondly, existing borrowers may take out more loans and thirdly, those who are nearing bankruptcy can breathe a sigh of relief,” Chong said. – July 1, 2022.