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Can interest be charged on debts of a bankrupt? Will interest on debts be written off in bankruptcy?

March 5, 2019
Interest on debts will not be written off in bankruptcy.

A creditor can only claim interest on your debt up to the date of the bankruptcy order but they will not get interest on their claim accruing after the date of the bankruptcy order as conferred by section 43(6) of the Insolvency Act 1967 [Act 360].

Depending on the circumstances of the case, a creditor may be able to claim interest on your debt beyond the date of the bankruptcy order under section 6(3) of the Limitation Act 1953 [Act 254].

Section 6(3) of the Limitation Act 1953 [Act 254] [2]:

Limitation of actions of contract and tort and certain other actions

An action upon any judgment shall not be brought after the expiration of twelve years from the date on which the judgment became enforceable and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due.


Section 43(6) of the Insolvency Act 1967 [Act 360] [1]:

Interest on debts

Where a debt has been proved upon a debtor's estate and such debt includes interest or any pecuniary consideration in lieu of interest, such interest or consideration shall for the purposes of dividend be calculated at a rate not exceeding six per centum per annum up to the date the bankruptcy order is granted by the court.


Explanation:

A creditor is called a judgment creditor when a court of law has granted a judgment in their favour for recovery of debt from a judgment debtor using judicial process.

A judgment creditor cannot enforce a judgment against you, which includes initiating bankruptcy proceedings, if they failed to take such action within a time limit of 12 years from the date the judgment is obtained. However, do note that the debt still exists.

If the creditor is asking the court to adjudge you a bankrupt for judgment debt more than 12 years ago, you may be able to raise the 12-year limit as a defence to that proceedings.

A creditor is required to get permission from the court if they want to initiate bankruptcy proceedings against you after 6 years but within 12 years from the date the judgment is obtained.

Example of Debt Interest Calculation:

Bank X obtained judgment against debtor Y on 1 June 2012 in the unsecured loan amounts of RM200,000 with interest at the rate of 18% per annum from date of judgment until full settlement and costs.

Debtor Y didn't repay and bank X commenced bankruptcy proceedings against the debtor. Debtor Y was adjudged a bankrupt on 1 June 2016. Section 6(3) of the of the Limitation Act 1953 [Act 254] allows arrears of interest of the judgment debt to be recovered before the expiration of six years. In such a case, the calculation of interest on debt of bankruptcy will be as follows:
  • 18% per annum on the principal sum of RM200,000 from 1 June 2012 until 1 June 2016
  • 6% per annum on the debt provable in the bankruptcy order from 2 June 2016 until 31 May 2018.

Interest Calculation on Bankruptcy Debt


Malaysian Department of Insolvency is not a court of law but the Director General of Insolvency, who accounts to the court, is vested with the power to carry out duties and functions under the Insolvency Act 1967 [Act 360].

References
  1. ^ Insolvency Act 1967, s 43 <https://www.lawyerment.com/library/legislation/acts/1967/360/cite/?s=43 > accessed 21 February 2019
  2. ^ Limitation Act 1953, s 6 <https://www.lawyerment.com/library/legislation/acts/1953/254/cite/?s=6 > accessed 21 February 2019


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Knowledge Base ID :   1596
Last Reviewed :   March 5, 2019
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