The number of personal bankruptcies in Malaysia is on the rise, signalling increasing financial pressure on households across the country. Economists warn that if this trend continues without intervention, it could harm productivity, reduce consumer spending, and weaken investor confidence.

Dr Ahmed Razman Abdul Latiff from Putra Business School highlights that rising bankruptcies do more than just impact individual spending power. They also increase credit risks for financial institutions. He notes that Malaysia is shifting towards a system that is more supportive of debtors through mechanisms like the Credit Counselling and Debt Management Agency, or AKPK. This approach contrasts with other ASEAN nations that still largely favour creditors.

Bankruptcy Cases Increase In 2025

Data from the first nine months of 2025 reveals a worrying trend. Malaysia recorded 4,875 bankruptcy cases during this period, representing a 5.7% increase compared to the 4,611 cases recorded in the same timeframe in 2024.

A significant portion of these cases involved substantial amounts of debt. Approximately 71.6% of the filings involved debts ranging between RM500,000 and RM999,999. Meanwhile, debts between RM100,000 and RM499,999 accounted for 20.6% of the cases.

Geographically, the pressure is most visible in major economic hubs. Selangor recorded the highest number of cases with 1,133 filings, followed by the Federal Territories with 665 cases, and Johor with 503 cases.

Younger Generation And Seniors Facing Hardship

The data shows a sharp rise in financial distress among younger Malaysians. The number of individuals aged 30 and below declared bankrupt rose by nearly 60%, jumping to 332 cases compared to 208 the previous year.

Senior citizens are also facing increased financial difficulties. There was a 43% increase in bankruptcy cases among the elderly, with 423 cases recorded compared to 295 a year earlier.

Personal loans remain the primary cause of these bankruptcies. In 2025, personal financing accounted for 45.1% of all filings. Business loans followed at 16.2%, while housing loans contributed to 8.8% of the cases.

New Rules For Personal Financing

Bank Negara Malaysia has introduced a revised policy to strengthen household resilience, which will take full effect from 1 January 2027. Under these new rules, borrowers seeking personal financing exceeding RM100,000 must complete a financial education module.

The policy introduces several other safeguards. It caps the repayment period for unsecured personal financing at 10 years and bans the Rule of 78 interest calculation method. Additionally, it mandates stricter checks on Buy Now, Pay Later facilities for amounts above RM1,500 and restricts access to these facilities for individuals who have been declared bankrupt.

Expert Views On The Solution

Dr Razman suggests that rather than relying solely on education modules or stricter affordability tests, the government should promote alternatives to high-interest personal loans. He proposes concepts such as Qard Hassan, or benevolent loans, coupled with Hibah (gift) features. He believes this alternative could improve individual credit scores while reducing the heavy financial commitment often associated with traditional personal loans.

Economist Doris Liew agrees that the rise in bankruptcies points to deeper structural issues, such as high household debt, slow wage growth, and the rising cost of living. She believes the revised rules by Bank Negara will have a positive long-term effect by limiting excessive borrowing, even if they temporarily slow down consumption.

Liew notes that the RM100,000 threshold limits the immediate economic impact since most smaller purchases fall below this level. She adds that the policy applies mainly to personal and household financing rather than credit cards or mortgages, ensuring consumer protection without stifling the broader economy.

Financial Education And Support

Bank Negara emphasises that personal financing plays a vital role in helping households manage expenses, but informed decision-making is crucial. The central bank highlighted that personal financing accounted for nearly half of all bankruptcy cases between 2020 and 2024, with the highest adoption among those earning less than RM5,000 per month.

To address this, Bank Negara is working with AKPK to develop an online financial education training course  similar to the existing Rumahku course for homebuyers. The training will guide consumers on how to estimate loan instalments, evaluate affordability, and understand the consequences of repayment.

While the new requirement is set for 2027, this initiative aims to complement the assessments banks already perform to ensure loans are suitable and affordable for new customers.

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