Car loan takers top bankruptcy list

By LEE YUK PENG
yukpeng@thestar.com.my

PETALING JAYA: At least 500 people who take out hire-purchase loans for vehicles are declared bankrupt every month.

The majority, comprising 37% (950) of the 2,565 cases in the first five months of this year, were aged between 35 and 44 years. (See Table)

Insolvency Department director-general Datuk Abdul Karim Abdul Jalil told The Star the incidence of bankruptcy from unserviced car loans was extremely high in the first five months of the year, an average of 513 cases a month.

He said this was in contrast to the average of 330 cases a month last year, 227 in 2008 and 265 in 2007.

He added that becoming bankrupt because of one’s inability to service vehicle loans had also topped the list of bankruptcy cases in Malaysia, accounting for about 24% of the total 80,370 cases between 2005 and May this year.

“Personal loan borrowers and business loan borrowers accounted for 12% and 11% of the total number of bankruptcy cases respectively within the same period.”

Once a person is declared a bankrupt he will be restricted from, among others, travelling overseas, holding the post of company director, and will have to give up his assets, including property and cars.

He must contribute to the bankruptcy estate, and will only be discharged once the sum owed is settled.

Abdul Karim is concerned that the number of bankruptcy cases involving car loans among those aged below 25 had shot up to 156 last year, against 55 cases each in 2008 and 2007.

There were 27 such cases as at May this year.
Under the hire purchase agreement, the bank repossesses the car if the borrower defaults on the monthly instalments for three consecutive months.

It will sell off the car to recover the sum owed and if the amount still owed is more than RM30,000 the bank will file a bankruptcy petition in the High Court.

In cases where the sum owed is below RM30,000, the bank will wait until the amount, with accumulated interest, balloons to RM30,000 before filing the petition.

On the rising incidence of bankruptcy involving those taking car loans, Fomca claims there is a reason why banks prefer to repossess and sell the cars instead of negotiating with the borrowers to come up with a scheduled repayment that they could afford.

According to its secretary-general Mohd Sha’ani Abdullah, some bank officers receive kickbacks from car repossessors and auctioneers for giving them business.

He said Fomca had complained to Bank Negara on the zero downpayment for car loans as advertised by some car salesmen last year: “How can this be allowed when borrowers have to pay at least 10% of the price as downpayment?”