What is bankruptcy?

Before we go further on bankruptcy fraud, let us first have a look at what is bankruptcy? How a person goes bankrupt?

According to Malaysia Department of Insolvency, bankruptcy refers to a process where a debtor will be declared a bankrupt pursuant to a court order. All property belonging to the bankrupt will vest on the Director General of Insolvency (DGI) and the DGI has the responsibility to sell all such assets. Once this is completed, the proceeds of the sale will be distributed among creditors who have filed their proof of debts with the DGI's office. 

For a clearer understanding on what is bankruptcy, let's have a look at this video:

How can a person made bankrupt?
You can only be made a bankrupt by a court order. There are two methods in which the court order may be granted i.e. either by a creditor commencing a bankruptcy proceeding against you by presenting a creditor's petition in court, or you may also voluntarily seek a court order to be made a bankrupt by presenting a debtor's petition in court. According to Section 5 of the Bankruptcy Act, 1967, the creditor may file for bankruptcy action against you if the debt owing is more than RM30,000. 

In Malaysia, bankruptcy law is primarily contained in the Bankruptcy Act 1967 which came into effect on 30 September 1967. The Act applies throughout Malaysia. The Bankruptcy Rules 1969 (‘the Rules’) governs the legal procedure in bankruptcy matters in general. In the absence of any rule regulating any proceeding under the Act or the Rules, the Rules of the High Court 1980 shall apply. The other pieces of subsidiary legislation are the Bankruptcy (Costs) Rules 1969 and the Bankruptcy (Fees) Rules 1969 which regulate costs and fees in bankruptcy proceedings respectively (Yusof, 2003).

References:

Chang & Diamond, APC (2014). What is Bankruptcy? [Online] Available at https://www.youtube.com/watch?v=r9qW-wPacEQ

Jabatan Insolvensi Malaysia at www.insolvensi.gov.my