How I Avoided Bankruptcy – Part 2
A true story of how a young man from Sarawak came to Kuala Lumpur for a better life, got buried in debt and is looking for a way out. Part 2 of a 3-part series.
In Part 1 of this series, Aliff (not real name) told his story of coming to Kuala Lumpur from Bintulu to work as a Polis Bantuan. He had difficulties managing his finances and ended up taking more loans than he could afford to repay. Because he worked with the government, he was always offered loans, from small cooperative loans to large bank loans, and it was easy for him to get approval for the loans. But after a few years of working in KL, he suddenly had to go back to Bintulu to take care of his sick mother. He ended up quitting his job, but with a RM134,000 bank loan to his name, he found himself in a difficult financial situation. He was also living in constant fear and stress with the loans hanging over his head.
If Aliff’s story sounds like something you’re going through, or if you want to avoid getting into the same situation, read on to find out how Aliff settled his debt, or read Part 1 in full here.
Part 2 – Trying to survive without a job
After resigning from my job to stay in Bintulu with my mother, I only had a few thousand ringgit left from my RM134,000 loan. It was the only money I had left to live on. I’d already used most of the loan to pay for my mother’s medical bills and repay some other loans.
In just a few months, I completely finished the money from my loan. And since I looked after my mother all day, I could only do some odd jobs around our neighbourhood.
To top it all off, I hadn’t been paying for my loan since I quit my job. So, I wasn’t just unemployed and making very little income, I was also in a lot of debt which I wasn’t repaying.
My mother eventually passed away 3 years after I went back to Bintulu. I decided to go back to KL to try and rebuild my life. That’s when I found how much financial trouble I was really in.
Have I been declared bankrupt?
Back in KL, I was nervous that I might be blacklisted because I hadn’t been paying my loan. I also found out that my bank account had been frozen. My friend had loaned me some money by depositing it into my bank account. But when I went to withdraw the money, I couldn’t.
That’s when I realised that my situation might be worse than I thought. I wondered if I’d even been declared bankrupt. But I was too scared to check with the bank.
Although I thought I’d try and get my job back as a Polis Bantuan, I decided not to because of my financial situation. I was afraid the authorities would find me and I wasn’t sure what they’d do to me.
I finally ended up getting a job with a security company. I asked them to pay me in cash so I wouldn’t have to deal with any banks. Even then, I only made RM1,900 a month, which was just enough to support my family, so I continued to avoid repaying my loans.
Finding out the size of my debt
I’ve now been working as a security guard for 10 years. One day, my boss asked for my bank account information. The company was going to transfer some money to all the staff, as a gift. I told him I didn’t have a bank account because of my debt problems.
He alerted me that because so much time had passed, my debt had probably grown much more due to interest and other late payment charges. I freaked out! I thought I might be declared bankrupt, but I didn’t realise my debt would keep growing and growing!
Getting help with my debt
My boss advised me to go online and get my credit report by registering with CTOS, the credit reporting agency, to understand exactly how much I owed and find a way to settle my debt.
Through CTOS, I was shocked to find out that I actually had 5 loans and owed a total of RM271,000. In the 13 years since I took my loan, my debt had become more than 140 times my monthly salary! On top of this, although I hadn’t been declared bankrupt yet, one of the banks I borrowed from had started the bankruptcy process against me.
CTOS advised me that the best option was to speak with each of my lenders to find a way to settle my debt. They said I might also have to get into a repayment programme to settle my loans and stop the bankruptcy process.
By now, the bank I had taken the loan of RM134,000 from had sold it to a debt collection agency. Usually when a bank can’t collect loan repayments for a long time, they sell the loan to debt collection agencies. The banks then make some money from the unpaid loan, and the debt collectors make money when eventually, borrowers settle the loans with the debt collectors. So, since my loan had been sold, I couldn’t deal with the bank anymore and had to discuss directly with the debt collector.
When it was sold, the value of the loan had become RM221,000 from RM134,000. At my first meeting with the debt collector, they offered a discount on the amount I owed, bringing it down to RM78,000. But since I couldn’t afford to pay that amount, I kept negotiating with them.
Finally, we agreed to bring the amount down to RM37,000. The debt collector had previously offered a monthly instalment plan of RM250 which would have totalled to RM50,000. But thankfully, I was able to come to an agreement to pay it off in a lump sum and that’s how the debt collector agreed on the lower amount.
But that wasn’t the end of my problems.
I had 3 other loans for my motorbike, electronics and furniture with three different lending companies. The loan balance for all three were quite small, so after dealing with the companies directly, they agreed to reduce some of the interest I had to pay. I could then settle the loans in full.
Under the advice of CTOS, I spoke to AKPK about another RM8,000 personal loan that I had from a different bank. It had since grown to RM15,000. So, AKPK advised me to join their debt management programme and restructure the loan to make smaller monthly repayments. I’m still waiting for the bank to let me know if they will reduce the amount of my loan.
I also had a loan of RM1,600 from a licensed moneylender that had grown to RM19,839 with interest. But since AKPK only deals with bank loans, I needed to speak to Kementerian Perumahan dan Kerajaan Tempatan (KPKT), which is in charge of licensed moneylenders, to help negotiate my loan with the moneylender. While discussing with KPKT, we continued discussions with the moneylender. We finally agreed for me to pay RM9,900 to settle the loan.
Overview of my Loans
For the last 10 years, I’d been living in fear of my lenders and was always stressed knowing that I had debt I couldn’t repay. I was not able to take any loans to buy a house or even own a bank account. I was also worried about having to pay for my kids’ education and knew I wouldn’t be able to take a loan for that too. But now that I’ve settled some and have a plan to repay the rest of my debt, I feel so much better. I can also have a bank account again, which makes life so much easier since most payments are now done online. I finally feel like I can get on with my life.
Multiply’s Tips: Some Malaysians might be experiencing problems managing their debt like Aliff. Hopefully, Aliff’s story can help you understand what you can do to manage your debt or avoid getting into the same situation. And if you are in a difficult financial situation, you should know that there’s always a way out, as long as you’re willing to talk to your lenders or get help from relevant agencies.
Here are 5 things we learned from Aliff’s experience which can help you manage your debt:
- Make sure your loan repayments aren’t more than 40% of your salary
If your total monthly repayments are below 60% of your salary, the banks will usually approve your loans. But always remember that if you’re using 60% of your salary for loan repayments, you won’t have much money left for living expenses! So try to keep your loan repayments to below 40% of your monthly salary.
And remember, if you have unpaid loans, your interest will keep growing over time. This is known as compounding. After a long time, the amount you owe will become much more than the amount you originally borrowed. So, if you don’t manage your loans properly, you could end up repaying much more than you need to.
- If you need help managing your loans, get help!
If you run into trouble, you should never just ignore your loans! And remember, if you have more than one loan you need help with, you might have to speak to different agencies. If you need help with bank loans, speak to AKPK. If you have loans from licensed moneylenders, you can try speaking to KPKT or deal directly with the moneylender.
If you want to check all the loans you have and confirm that you’re keeping up with your payments, you can get your credit report. Your credit report will tell you information like your credit score, banking payment history, if you have any dishonoured cheques or legal cases and what loans and credit facilities you have, plus how much you owe for each facility and any missed payments.
You can get your credit report from a credit reporting agency, like CTOS. This will help you figure out if you’re managing your debt well or if you should get help.
- Understand how bankruptcy works
If your lenders start the bankruptcy process against you, they’ll have to send you a written bankruptcy notice to your last known address. If they can’t reach you, they might publish the notice in the classifieds section of the newspaper. Since you may no longer live at your last known address and might not get mail from there anymore, and unless you’re reading the newspaper every day, you could become unknowingly bankrupt! A good way to avoid this is to always ensure your address is updated with your creditors whenever you move. And remember, even if the bankruptcy process has started, as long as you contact your lenders to come up with a plan to settle your debt, you may be able to stop the bankruptcy process.
- Always negotiate your repayments
By the time you’re ready to settle your debt, the amount you owe could be much more than your original loan amount. Don’t give up, even if you can’t afford to repay the amount your lenders ask from you. As long as you show your lenders that you’re serious about settling your debt, even if it’s been a long time, you can keep negotiating with them to get the best repayment plan – like how Aliff did.
Watch out for Part 3 of this series coming out on 7 June 2021, when we’ll look back on Aliff’s experience to see what lessons we can learn about tackling debt.