Debt collection is legal in Malaysia and governed by several laws that regulate debt recovery and enforcement practices.
Bank Negara Malaysia has laid down a set of fair guidelines to be followed while collecting the debt. As per the guidelines, the debt recovery should never be unjust. It should be done in a manner that is fair to the borrowers, upholds human rights, and protects the privacy of the debtors.
It should be done in a manner that is fair to the borrowers, upholds human rights, and protects the privacy of the debtors. This includes setting time limits on how long creditors can pursue legal action to recover debts.
So what are the key points to note under fair debt collection practice to balance the interests of both creditors and debtors?
Banks or other credit institutions while engaging a debt collecting agency should take note of the following:
- Not use violence or any sort of intimidation
- Serve written notice to the debtor
- Present an authorization card
- Provide the right kind of customer information
What does the Limitation Act specify?
The Limitation Act 1953 is enacted to impose a certain time limit on the enforcement of contractual obligations.This includes banking and trade debts, which also have a six-year limitation period.
As per Section 6(1)(a) of the Limitation Act 1953, any action must be brought within six years from the moment a cause of action occurred.
This means that you must commence legal action to recover your debt within 6 years from the date the amount is first owed to you.
What is the period of limitation for a banking or trade debt?
For a banking or trade debt, the period of limitation is six years. The Limitation Act 1953 applies to all banking related unsecured debts such as credit cards, loans, etc.
As per Section 6(1)(a) of the Limitation Act 1953.
“An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action”.
This applies to all civil suits involving banking, debt recovery, etc.
All banking and trade related debts will no longer be actionable after a period of six years, and no legal action can be initiated against the debtor. However, this period of limitation can be revived if there is any acknowledgement by the debtor.
For example: If a customer owed RM100,000 for the purchase of materials in 2010 and failed to pay the sum, the creditor cannot initiate a suit in 2020, as the Limitation period would have expired. However, if the customer acknowledged the debt of RM100,000 in 2020, then the 6-year period of limitation will start all over again.
Can I sue after 6 years?
No, you cannot, unless the debt is acknowledged. The Malaysian Limitation Act 1953 forbids the creditor to sue the debtor after the expiration of six years. However, if a debtor acknowledges the debt, the six-year limitation period can be revived.
To recover the money, you could still call the debtor and negotiate, but however, it would be legally impossible to initiate any legal action against the borrower.
This applies to all contractual obligations as well when it comes to breach of a contract.
Can I sue after 2 years?
Yes, indeed you can.
If the debtor has not given any positive reply to your persistent demand for repayment, a suit can be initiated against the debtor in a court of law.
Make sure that a letter of demand is sent by you or by a lawyer or debt collection agency on your behalf to the registered address of the borrower. However, we do recommend that before consulting a lawyer, you engage us first to issue a demand, seek to negotiate with the debtor, and undertake some background checks beforehand.
What happens after 7 years of not paying the debt?
After the expiry of 6 years, there won’t be any legal support for the creditor to claim back the money owed by the debtor. Any unsecured debts will be deemed ‘expired’ after the completion of six years.
As such, the debtor cannot initiate any legal action against the borrower after 7 years. Even if he does so, it will not be entertained by the Court. Your best bet is therefore to negotiate with the debtor and seek to get some repayment, or to obtain an acknowledgement of the debt by the debtor in order to revive the limitation period.
What happens if you sue someone and they don’t have money?
It would be an unwise decision to sue someone who has no money to pay. The value of all their assets needs to be considered before going through a lawsuit that will consume both time and money.
However, bankruptcy, winding up proceedings, or garnishee proceedings can be options for debt recovery.
There are some legal remedies in case if a person claims that he has no money to pay.
- Bankruptcy proceedings: If the debtor owes you RM100,000.00 and above, bankruptcy proceedings can be initiated. If declared bankrupt, all financial transactions of the debtor would freeze. All the assets of the debtor will then be sold off, and money will be equally distributed among all the debtors.
- Winding up proceedings: Here, the company assets will be sold off to pay the debts.
- Garnishee Proceedings: Monies in bank accounts can be garnished to pay off the debt.
Do debtors have to pay a debt that is over 10 years old?
No, debtors don’t need to pay a debt that is over 10 years old. The creditor or debt collecting agencies might still ask you to do so. The debt will be deemed ‘expired’ by law after six years.
How long before a debt is written off?
If the creditor does not initiate legal action against the debtor within six years, the debt will be written off. Debts over six years old that are not pursued legally will be written off.
What happens if debtors ignore debt collectors?
If you persistently ignore debt collectors even after getting repeated reminders, chances are high that you might end up getting sued. Ignoring debt collectors may lead to lawsuits, potentially resulting in severe complications.
The creditor will sue the debtor as a last attempt to recover the indebted amount. In the event that debtors don’t appear in court during the trial, the creditor will win by default. This can further result in more severe complications such as winding-up proceedings, bankruptcy and garnishment of your accounts.
Can a third-party debt collector sue?
Yes, they can, provided the documentation is put in place.
Debt collecting agencies are hired by companies to collect the debt on their behalf. An established debt collector would have the necessary documentation put in place to ensure that it can recover on behalf of the creditor.
Debt collection agencies usually operate for a certain percentage of the total collected amount or for a certain fee. Some debt collectors act as debt buyers by purchasing the debt at a fraction of their face value.
If the borrower is not paying back the amount after sending several reminders, the debt collector can sue the borrower in the court of law on behalf of the creditor.
Can the period of limitation be extended?
Yes, a limitation period under the Limitation Act 1953 can be extended if there is any acknowledgement by the debtor.
What are the common debt collection practices in Malaysia?
In Malaysia, debt collection usually follows these steps:
- Contacting the debtor: Debt collectors contact the person owing money through phone calls, emails, or letters.
- Negotiating with the debtor: Debt collectors may try to negotiate with the debtor to find a suitable solution with a payment plan the person can manage. This may include proposing payment instalments that take into consideration the debtor’s health, job, and welfare status.
- Issuing a Letter of Demand (LOD): If talking doesn’t work, they may send a formal notice called a Letter of Demand asking for the outstanding sum. This method allows parties to negotiate and mutually reach a settlement without having to go to court.
- Legal action: If amicable attempts to recover the debt are fruitless, they may take legal steps to get the money back. There are various methods available for debt recovery in Malaysia, depending on the specific circumstances.
- Following local rules: Good debt collection firms follow Malaysia’s laws and respect local customs while doing all of this.
Debt collectors in Malaysia should be fair and are expected to adhere to the above guidelines to protect consumers from harassment and unfair treatment
Final words
When it comes to debt, collecting at the right time is the best solution. In the modern-day world, it is sometimes imperative to seek financial assistance. A long term plan is very much necessary to avoid the hassles of dealing with a bad debt. Understanding the key laws helps ensure fair debt collection practices.
Creditors and debt collectors must adhere to prescribed procedures when pursuing unpaid consumer or commercial debts in Malaysia.
Also read: What you should know about Collection and Litigation on bad debts
