New data from the Malaysian Insolvency Department shows Selangor recording the highest number of bankruptcy cases nationwide. A significant share of these cases involves civil servants, particularly teachers, highlighting how stable incomes can support financial security while also increasing exposure to debt.

The findings are based on state-level insolvency data and reinforced through the department’s financial literacy outreach programmes.

Easy Loan Access Increases Long-Term Financial Exposure

Malaysian Insolvency Department Director-General Datuk Ishak Bakri said salaried workers with predictable monthly incomes are often approved for personal loans more easily. While this access can help meet immediate needs, it also raises long-term exposure when borrowing commitments accumulate.

Teachers and other civil servants may appear financially secure due to steady income, but sustained repayments across multiple loans can place prolonged pressure on household finances if borrowing is not carefully managed.

Financial Literacy Efforts Focus On Early Decision Making

To address these risks, the insolvency department has expanded financial literacy programmes across several states. The focus is on helping salaried workers understand borrowing limits, repayment structures, and the long-term impact of unsecured debt.

These efforts aim to reduce insolvency cases by strengthening financial decision making before debt levels become unmanageable.

Salary Increases Arrive Amid Ongoing Debt Concerns

Against this backdrop, teachers will receive a salary increase under Phase Two of the Public Service Remuneration System, with revised pay credited on January 22. The adjustment is already in force and is calculated based on salaries as at December 31 last year.

Staff in the support and management-professional groups will receive a 15% increase, while members of the Top Management Group will see a 7% rise. According to the Education Minister, staff salaries account for around 80% of the ministry’s total budget.

Public Service Pay Reform Builds On Earlier Changes

Phase Two follows an earlier pay revision announced in May 2024, when the Prime Minister confirmed a pay rise of more than 13% for civil servants under Phase One. That adjustment took effect from December 2024.

Together, these changes represent one of the most significant public sector remuneration updates in recent years.

Insolvency Policy Shifts Towards Rehabilitation

Meanwhile, in the past year, 200,000 individuals were discharged from bankruptcy, exceeding the government’s key performance target. This reflects a broader shift in Malaysia’s insolvency framework towards rehabilitation and reintegration, rather than punitive enforcement.

The approach supports the government’s second chance policy, which aims to help affected individuals return to financial stability and economic participation.

Higher Income Alone Does Not Remove Financial Risk

Despite income growth and policy reforms, insolvency data suggests that higher earnings alone do not eliminate financial risk. This is especially true when borrowing behaviour remains unchanged as income increases.

For salaried workers, predictable pay continues to make credit access easier, reinforcing the importance of disciplined borrowing and realistic budgeting.

Insolvency Act Changes Expand Access To Relief

This shift towards rehabilitation is supported by a 2023 amendment to the Insolvency Act, which allows the Director-General to approve bankruptcy discharges without requiring a court order, as long as applicants meet specific conditions. The provision is already in force.

The criteria are intended to help individuals facing long-term or health-related challenges, including those aged over 70, individuals who have remained bankrupt for extended periods, and those with diagnosed mental health conditions supported by confidential medical certification.

Faster Support Planned For Vulnerable Borrowers

The insolvency department is preparing fast-track discharge pathways for single mothers, victims of financial fraud, and micro-borrowers. These measures remain under development and will be announced once finalised.

Aligning Higher Pay With Sustainable Financial Choices

For teachers and other civil servants, higher salaries can improve monthly cash flow and provide greater flexibility. At the same time, stable income continues to increase borrowing capacity.

As salary increases take effect, aligning income growth with careful debt planning and sustainable financial choices remains essential to reducing long-term financial stress and avoiding insolvency risks.

Follow us on our official WhatsApp channel for the latest money tips and updates.