Saturday, 30 August 2014

Legal Action Procedures: Personal Loan Part 3


In the last post we have learned about the process of obtaining Judgment from the Court. So we will show the previous info graphic to refresh your memory.

As you can see, there are a few options available for the Bank to "persuade" or "force" the borrower to pay through the execution of Judgment together with the estimated time frame for each action. We will examine each method one by one.


If the Judgment sum together with the accumulated late charges (after Judgment) and cost added together comes up to at least RM30,000, the decision is straightforward that is the execution of Judgment by way of Bankruptcy action. This is the most feared action for most borrowers because their "freedom" will be taken away and "frozen" as detailed below:

1) All his/her financial matters will be administered by the Official Assignee (OA) appointed by the Jabatan Insolvensi Malaysia (Malaysian Insolvency Department)

2) His/her Bank account will be frozen until given the consent by the OA to be activated.

3) The Bankrupt would have to submit or reveal a detailed list of his/her assets and liabilities including monthly expenses. The OA will then decide (after discussion of course) how much from the monthly income to be deducted to service the outstanding loan.

4) A Bankrupt cannot hold any position (directorship, partnership, sole proprietorship) in a company meaning he or she will not be able to do any registered business

5) A Bankrupt cannot travel outside Malaysia without the written consent from the Director General of the Insolvency Department. For those who wants to perform the Haj, it is however allowed only once. A bankrupt is required to surrender his/her international passport to the Insolvency Department.

6) The OA will also conduct a check on the Bankrupt's loan status with other Banks and will include ALL of them in their records. That simply means that when other Banks find out about the Bankrupt's status, they will file a document called "Proof of Debt" where all liabilities of the Bankrupt will be grouped together and unless until all of the outstanding sum is settled, a discharge will not be given. Anybody can file this document. Imagine if during the younger days the Bankrupt used to bully the old ice cream man or the local "roti" seller by taking ice cream and bread without paying, they too can file the "Proof of Debt" if they are still alive and pissed enough to do so. That is an extreme example but it can happen. You never know...

Those are some of the "privileges" of being a Bankrupt but he/she may still work as usual but need to keep on paying the monthly commitment with the OA. We should be thankful that we have our independence. Some people told me that during the British rule, a Bankrupt is only allowed to wear a "singlet", short pants and slippers to reflect his "status" in the society. We have no idea if there is a female version of a Bankrupt during that time. Correct me if I'm wrong. This is only based on hearsay.

With a lot of "pain" and inconveniences of being a Bankrupt, this is the "best" and most potent weapon of the Banks (that is if the person is "worth" something to pay the debt). What if the outstanding amount is less than RM30,000 or almost RM30,000 with "so near yet so far" situation? If it is almost RM30,000, the Bank can wait for a little while until the interest gained reach the "magic" number. We shall discuss in length the Bankruptcy procedures in another posting (otherwise this post will be much longer and some of you are complaining about long articles. Too lazy to read they say...). In short, it will take approximately 6 (SIX) to 8 (EIGHT) months to "successfully" make a person a Bankrupt if everything goes "well".


A problem will arise when the Judgment sum is too far from the magical figure of RM30,000 and if the Bank wants to wait for the interest to be enough to cover for it, it will take too long and the senior officers would have been retired by then. Therefore another alternative would have to be taken to "persuade" the borrower to make payment. We can see from the graphic below regarding a Judgment sum of RM14,000, with an interest rate of 6% and the time taken to reach the figure of more than RM30,000:

You can see for yourself that even at a compounded rate of interest, it would take a bit more than 13 (THIRTEEN) years or we can take a "ballpark figure" of  14 (FOURTEEN) years to reach RM30,000 while knowing the limit for Judgment execution is only 12 (TWELVE) years.  So the next course of action would probably be the execution of Judgment by way of "Writ of Seizure and Sale" that is loosely translated as an Order from the Court to seize the belongings in the borrower's place of residence or house and auctioning it to recover the outstanding sum. It is part of the "Writ of Execution" (If you want a detailed explanation, please ask your local Mr Lawyer. It is not the scope of this post and this is not a course in Law. In the context of this post, this is deemed sufficient to give a bit of general explanation)

In this case, the Bank can make an application to the Court for an Order to seize the property or belongings that is believed to be the borrower's and contained inside the borrower's house. The belongings shall not include the clothes the borrower wears at that point of time (Hard luck if you are clad in a towel after a shower), wife and kids and whatever that is deemed reasonable for the borrower's use including undergarments, handphone (so you won't miss your Facebook updates), cooking utensils and the "tools of the trade" that is the equipment that may be essential for the borrower to earn a living up to the value of RM200. I do not know whether this amount has been amended to "keep up with the times" but I won't waste my time checking because normally this is not followed strictly based on compassionate grounds since the main purpose is not so much on the auctioning off the belongings (not much can be gained anyway unless the belongings are indeed valuable) but to embarrass the borrower to make payment.

When the Order is obtained, the Bank officer, accompanied by the Court Bailiff will visit the borrower's house and will list all the belongings inside the house that is deemed valuable and give an estimation of their values (normally about 50% of actual value) and get a total sum. The borrower then will be given 14 (FOURTEEN) days to settle the Judgment sum or negotiate a payment proposal failing which the goods and belongings will be sold at a public auction. A security guard will be stationed at the house to make sure that no belongings are taken out of the house during the period and the borrower will also be required to pay for the guard's personalized security "services"

When doing this sort of action, always keep in mind that some items which may look "valuable" like the brand new 90 inch 3D LED TV and the state of the art Home Theatre System may not really "belongs" to the borrower. They may still belong to a creditor for example Courts Mammoth or Seng Heng and CANNOT be seized unless you can sell them more than their outstanding amount which is impossible. If those items were recently purchased during the Raya or Eid celebrations with the "pay three months later" promotion, then not even a single cent or "sen" has been paid. Another factor that needs to be considered is that the borrower may claim that the household items does not belong to him/her but his/her spouse, mother, father, grandfather, family friend or the cat or whatever entity he/she can think of. The Bank officer would have to be very cautious in assessing the situation.

In this kind of situation, there are bound to be commotions and tensions due to the "embarrassment" factor especially with the neighbours (the nosy ones, of course with their own local gossip Facebook Page and a smartphone in hand) not to mention the "price" given for the household items. However, as mentioned earlier, usually not much items that is of value can actually be gathered and recorded. The Bank may eventually has only a few useless and worn out items in the inventory and obviously it may not worth the effort. To get the Order is one thing as it may take a long time especially in major towns like Kuala Lumpur as well as the "difficulty" in "booking" the services of the Court Bailiff is another as there are not many of them around. The Bank can only hope that the borrower is embarrassed enough to find a way to make payment otherwise the Bank would have to proceed with the auction of "worthless" junks. This is where the role of the Bank's "CSI" team is very important in making preliminary assessment. 

This action (Writ of Seizure and Sale) is "best" used on a company's premises and a company that is still doing business. At least the items in the premises is more or less "confirmed" to be belonging to the company concerned and at the very least, the Bank can seal the entrance for 14 (FOURTEEN) days. If the company has a good reputation and is still doing business, it will definitely negotiate a payment settlement. A case in point happens to, ironically to a well known Bank where the Bank has been sued by one of its customers. The customer is a partner in a company which has substantial amount of money in an account with the Bank. His other partner passed away and the Bank refused to release the money to the other partner hence the suit was filed. The partner won and proceeded with the Writ of Seizure and Sale and the Bank's premises was sealed with the staffs and some customers still inside. Needless to say, the Bank settled the matter immediately. For an individual, based on the factors aforementioned , it is quite difficult with the risk of not getting anything except for incurring more costs.


This is an "ambush" method where an Order will be served to anybody (usually a Bank) or a person who has money due to be paid to the borrower. In case of a Bank, the Order will be served when it is perceived that the money is already credited to the borrower's account. In case of a company or individual, if it is determined that there is payment is to be made to the borrower, the Order can be served to the company or individual BEFORE it has been paid to the borrower. Therefore, in either case, whatever amount available will have to be surrendered to the Bank initiating the action and if there is an excess, it will be refunded to the borrower. This method is risky because if the timing is not right or the amount is not "right", it may be just be an exercise of futility. On top of that, there are certain restrictions as to what can be garnished using this method as detailed below:

1) You cannot use this method against the Government

2) Monthly salary due to the borrower CANNOT be garnished as it will contradict Section 31 of the Employment Act 1955 which gives protection to employees in terms of their salaries.

3) Borrower is deceased

4) Under Section 11, Workmen's Compensation Act 1952, any compensation due to the borrower cannot be garnished. ("Save as provided by this Act, no lump sum or half-monthly payment payable under this Act shall in any way be capable of being assigned or charged or be liable to attachment or pass to any person other than the workman by operation of law nor shall any claim be set off against the same.")

5) Under Section 41 (2) Employees’ Social Security Act 1969  which states that "no cash benefit including invalidity grant or contributions payable under this Act shall be liable to attachment or sale in execution of any decree or order of any court."

As you can see for yourself, this method of execution may "fall flat in your face" due to the wrong timing of serving as the Bank cannot "force" the Court to come up with the Order to their liking and the time taken may well be after the money to be garnished has changed hands and spent by the borrower. The strategy must be well planned and highly accurate and again, the "CSI" department must have "top notch" information otherwise it will be a total waste of time and more cost incurred.


This type of action is seldom used as it involves the possibility of putting the borrower in jail. What a "good" prospect as some might say especially for those borrowers who are a "pain in the ass" to deal with but it is not that simple. What the Bank wants is a "win win" situation and a "lose lose" or "in your face" situation for the borrower. That means for the clerk or officer handling the "pain in the ass" case, wouldn't it be good if they can get the payment and the borrower goes to jail? (As in the monopoly game, "Go directly to Jail, Do Not Pass GO, Do Not Collect $200)

Unfortunately, you cannot have the cake and eat it at the same time. The Court may send the borrower to jail but the Bank won't get the money because that is the reason the borrower went to jail in the first place! On top of that, all the "expenses" that is the "meal allowances" (at least three times a day) for the borrower will have to be paid by the Bank.

The Bank would have to think carefully before invoking this action because its reputation is at stake. While on the positive side it may be good to be seen as a "no nonsense" Bank, it could also bring negative side effects. The Bank may be perceived as a "cruel beast" imprisoning non paying borrowers (while it is okay for the same "cruel beast" creating money out of thin air and charging interest on top of that due to the capitalistic economic system of dependency) especially during these times of the "boycott" phenomenon. They would not risk the fate of a well known Bank recently being condemned for closing the account of a few Islamic charitable organizations that contribute to the cause of the Palestinians. Some has called for concerted withdrawal of their facilities with the Bank or a mini "Bank Run". What is odd however, is that this Bank's "Islamic" or "Syariah Compliance" department which has been certified "Halal" previously has been declared "Haram" or "Not Permissible in Islam" even though its so called Islamic "modus operandi" is EXACTLY the same with the other Banks... Hmm... So the Banks normally would have to be careful with its actions in order to avoid a similar fate or risk a boycott or even a total Bank run with the powerful social media at its mercy.

Ok. Sorry to digress a bit from the topic of Judgment Debtor Summons (JDS). We now go to the process of this particular action. It goes like this:

1) The borrower will be "summoned" to appear in Court to give a detailed information (with documentary evidence) of his/her monthly income and expenses and will be assessed on his/her capacity to pay the outstanding loan amount.

2) When the Court or rather the Judge is satisfied that the borrower has the capacity to pay a certain amount towards the outstanding sum, a "Consent Order" will be issued to the borrower if he/she consented to the arrangement. However, an "Order of the Court" can also be issued when there is no consent recorded requiring the borrower to settle the Judgment sum in full or by monthly instalments.

3) If the borrower fails to appear in Court after the service of JDS, a Warrant or Order of Arrest will be issued against him/her.

4) In the event the borrower fails to adhere to the Order of the Court or Consent Order, a notice called a "Judgment Notice" will be issued against him/her  requiring the borrower to explain the reason why he/she fails to comply with the Order of the Court and convince the Court why he/she should not be sent to jail for non compliance.

There you go. It sounds and looks "brutal" enough. But one has to remember one thing. The Magistrate or the Judge is, well, a normal human being after all and has feelings. There are some who will strictly "go by the book" but most of the time will sympathise with the borrower. Some will see it as "a big bully of a Bank" trying to squeeze the last drop of money from a "teeny weeny" borrower. Those borrowers who are well advised or with some sense of creativity will come with more documentary evidence of expenses than income especially those doing their own business coupled with a heart wrenching story akin to a "Bollywood" movie. The borrower may come with ragged clothes, unkempt hair, an unshaven look and to add some "flavour", may also do away with armpit deodorant to amplify the "hardship and suffering" effect. Coming with a wheelchair might have another "wow" effect. The Bank officer and Mr Lawyer may even cry and sob uncontrollably.

However, it is also advisable not to overdo it. The "Stinking Armpit Move" and other moves may backfire and turn out to be an "anti climax" if the Magistrate or the Judge could not stand the stench and may end the session abruptly thus depriving the borrower to deliver his/her "heart wrenching" story. Whatever the results may be, normally this mode of execution is less effective and even if there is payment decided by the Court, it may be too little from the perspective of the Bank. A potential waste of time and probably some wasted tears. 

So Ladies and Gentlemen, those are ("briefly") the procedures involved in the execution of Judgment against borrowers. With regards to Bankruptcy Proceedings, we shall discuss it in a specific post since this is the most common action taken by the Banks and it involves very specific rules and procedures. 

The next question would be, if the borrower has money, how do they make payment after Judgment has been obtained? Keep on reading.....


When talking about making payment after Judgment, there are a few things you need to know. There are some of you who only wants to pay only RM50.oo a month so that the Bank receives only a small amount. A sort of "in your face" kind of payment which is actually not a very smart move which we will see in a short while. Lets say the details of the Judgment obtained are as follows:

Judgment Date   :      15 Jun 2014
Judgment Sum   :    RM14,000.00
Interest Rate       :    6% a year until full settlement
Other Cost            :    RM600

Therefore if the borrower intends to pay RM50.00 (most probably under the Order of the Court, as the Bank would not accept this kind of proposal) as a "serve them right" or "in your face" kind of payment, we shall see what will happen and how the payment is treated and its calculation.

As you can see from the above example, the payment of RM50.00 is not even enough to cover the calculated monthly interest so the Judgment balance will increase and the interest will be calculated on the "new" Judgment balance. Please also note that the cost will remain the same until a substantial amount is paid to cover the whole sum. Some Banks will deduct the cost first so in this case, it will take 6 (SIX) months to cover for the cost and the Judgment interest will be calculated for six months and definitely the RM50.00 will not be able to cover the interest as well. Therefore the Judgment sum will never be settled and the interest will perpetually increase. So much for the "in your face" payment where it will instead fall flat on the face of the borrower.

For the Bank, it would not be too much trouble nowadays to treat such small payment unlike the "good old days" where things were done manually. Even so, it is not difficult to do as it only involves taking out a "dummy ledger" and recording the payment and interest and issuing a receipt. Therefore if the borrower is serious in settling the Judgment sum, he/she should negotiate a discount on the interest charged as the cost is usually non negotiable since the Bank has already paid for it. The Bank usually will ask for an upfront payment which would be able to cover at least 30% to 50% of the Judgment sum so the subsequent interest can be reduced. The proposed monthly instalment after the lump sum payment should be able to cover for the monthly interest and reduce the Judgment sum as well. If you want to win against the Bank you may win some of the time but the Bank will "win" most of the time.  Every time you take a loan, your name will be forever recorded in the Banks' computer system and some other third party information system as well as in the Central Bank's system. When you are being sued by the Bank, it will also be recorded in CTOS (Credit Tip Off Service - A Private company) for the Banks' future reference.

However, there exist some "backdoor" loans (besides loan shark "facilities") that can be obtained by "blacklisted" and Bankrupt borrowers as evident by the various advertisements for personal and car loans with the tagline "Blacklisted and Bankrupts" can also apply. How do they do it?  We shall discuss it in further detail in yet another post.

In conclusion, Ladies and Gentlemen, after going through the procedures of the execution of Judgment, you should understand by now that the best avenue for the Bank or rather the "easiest" course of action would be by way of Bankruptcy proceedings as it is the least "troublesome" and the one with the highest impact although it requires an outstanding sum of at least RM30,000. However, judging from the price of cars and houses nowadays some reaching hundreds of thousands and even millions, it should not be a "problem". The "problem" is with the amount less than the "magical" figure of RM30,000 as we have seen previously. It can be a personal loan or a shortfall or balance from the auction of a car or a house which still need to be collected.

This is where the Debt Collection Agency plays an important part as a "support group" for a more effective debt collection. This is more or less a "symbiotic" relationship between the Bank and the Collection Agency. As what I have mentioned before in previous articles, there are Banks who appointed the Debt Collection Agencies on a commission basis and there are Banks who "sold" the debt at a discounted "price" depending on each Banks' collection policy. The legality of such deal is still open for debate but since some loan agreement may have included this option, it may not be a big issue after all.

The main issue would be on the subject of selling off bad debts which has been written off and may have "expired" due to the restriction as provided in the Limitation Act and the basis of selling and collection would be on "best effort basis". A lot of people has been harassed for such debts by the Collection Agencies without knowing that the debt has expired and the Banks or the Collection Agencies have no right to collect the debt anymore. Even though "morally" the borrowers are still obligated to pay but the matter is up to the "discretion" of the borrower now as the borrower may want to pay only the principal sum and a "little bit" of "reasonable" interest. The matter can be settled amicably when the borrower has the capacity to pay to clear his/her name. If any one of you (meaning you the reader) has been harassed for a debt that is at least more than 6 (SIX) years since the last instalment paid, it is better to check with the Bank whether there is any legal action ongoing or check whether there is any Judgment obtained against you and check whether the judgment is still "alive" or more than 12 years WITHOUT any execution of Judgment. Bring a lawyer if you have to. The Collection Agencies are required to follow certain guidelines even though some claimed that their collection techniques resembles that of a loan shark.

Another point worth mentioning is that it is very important not to sever any ties with the Bank as you need to know what they are up to even though some of you would prefer to perform the "disappearing act". However, the "disappearing act" technique may haunt you later especially during a Bankruptcy proceeding where the chances to do some "time wasting maneuvers" may not be available until its too late. So stay in touch even though through a "proxy". "So near yet so far" kind of relationship.


The last question for this post. What about the guarantor? What will happen to them? The info graphic below has the answer.

I just want to add a bit of information. If a guarantor is the spouse of the borrower, it can be said that it is "the norm" or "acceptable" since there is a "sharing of benefit" unless the spouse has no knowledge about the loan as this also happens sometimes. If there is a divorce (some are caused by the loan itself) there would seem to be a problem of determining who is "responsible" but by law both are equally liable.

As for the "social" guarantor like being a guarantor for a friend or amongst siblings, it is more complicated. If the borrower suddenly "decides" to disappear, then the guarantor would have his/her life turned upside down. There is a Malay saying which literally means  "carrying a live monitor lizard" or "carrying an unnecessary burden" or something to that effect and that is exactly what it is. If among siblings, at the very least there is a chance to see them during festive season but among friends, I wish you good luck. So the next time somebody asked you to be a guarantor, think very, very carefully before signing on the dotted line. A friend of mine was asked to be a guarantor but due to his ignorance, he was instead "turned" into a borrower and now would have to bear the burden of paying the loan. So be careful before giving your identity card to anybody and I do mean anybody. People can fake savings account, Income Tax forms and other loan "documents" and all they need is an accomplice in the Bank to "manufacture" the loan. You may become a victim of a loan scam. A lot of guarantors has been declared a Bankrupt for "nothing" where they received no benefit whatsoever except for a tarnished reputation as a "bad person" in the eyes of the Banking sector.

Well, this is the end of quite a long post on the Legal Action and procedures for a Personal Loan. For housing and vehicle loan, there is a slight difference in the steps taken as both have their own sets of Laws or Acts to adhere to. The end result is the same after Judgment is obtained after the auction of the vehicle or the house where there is a shortfall (depending on some conditions). We shall discuss in detail in another post (again!). For the time being, digest this one first....


  1. Abu Ammar..

    TQvm.. Very Useful and Educational. Can add me to anything you have posted? My email address is

  2. You can follow the blog by email or you can like this page
    I post updates for both English and Malay versions. Thank you

  3. Wow, very detail and useful,
    thank you for information.


Kindly leave your comments here. Mind your language though and be precise and relevant to the current discussion. If you need to post something else, create a new comment. Thank you