AS a relative, you have certain obligations towards family members.
That’s what relatives are good for.
As a friend, having the means to help another friend, you would try your best to assist him or her, for friendship’s sake.
For it is said that a friend in need is a friend indeed.
Who knows? One day in the future you may need help from your relative or from your friend.
One good turn deserves another.
The risk of getting yourself in trouble is secondary when there is mutual trust existing between you and your relative or friend, even if the fellow needs to borrow money.
So without a second thought you will sign on the dotted lines of the contract as a guarantor – surety to a scholarship loan for your niece.
Happily, you sign the agreement in respect of a loan granted by a bank to your contractor friend who needs working capital to finance a project.
The possibility of getting yourself into trouble should your friend default on his loan is always there, but because of the sincere wish to see him succeed in his project, you are willing to take the risk.
And then, so often, comes the crash.
This is a strange world.
What begins with a sincere act of generosity has turned out to be a curse rather than a boon.
The borrower can’t or won’t pay, and in the end the guarantor or surety is adjudicated a bankrupt by the court.
What an unfair world this is! In return for the kindness and the favour you have given to another, you get yourself into serious financial trouble instead.
I know that this is a debatable topic.
From the point of view of the lender, either as the government/Public Service Department or a bank, it is fair and proper that the borrower should pay back in full the total amount of the debt.
After all, a scholarship loan is public money in the first place, the government merely acting as lender or cashier.
In the case of money borrowed from the bank for your contractor friend, the money is from the bank’s clients.
So it is fair and proper that the loan be paid in full inclusive of the necessary interest.
However, from the point of view of a third person – the guarantor – a different treatment should be given.
Allow him or her to release himself or herself from the clutch of the trustee in bankruptcy – an honourable way out.
The court must be given power to go for the dishonest borrower, not the guarantor.
I have known of a number of cases of kind-hearted people getting into financial trouble because they allowed themselves to become guarantors to loans taken for students’ scholarships.
They were made bankrupts because the borrowers defaulted on their loans.
We all know what stigma bankruptcy entails.
An undischarged bankrupt in Malaysia has restrictions on his rights as a citizen, imposed on him or as if he were a dangerous criminal.
He is not.
He is shunned by friends especially erstwhile business associates.
He cannot be appointed director in a company.
His bank accounts are frozen.
To travel outside the country, he has to ask permission from the director of the Insolvency Department for recommendation to collect his passport, which has been impounded by the Immigration Department.
Former friends avoid the bankrupt for fear he might ask for money.
He cannot be trusted to settle the debt.
Relations between relatives are strained for a long time.
Any wonder that a lot of people with some money to spare are not willing to stand as guarantors for a loan? For many years now, the legislation of 1967 is allegedly biased, especially with reference to the guarantors of loans.
Once detected in 2004, in the case of Moscow Narodny Bank, this loophole was brought to the attention of the federal government.
But ministers in the Prime Minister’s Department tasked with legal affairs have been dragging their feet in “looking into the matter”.
Only recently was there a hint from the present de facto minister that the government was “considering” making improvements to the Bankruptcy Act, 1967.
Better late than never.
If and when the matter is being “considered”, it would be helpful, perhaps, to take a leaf from the English Insolvency Act, 1986.
In the United Kingdom, although all the property of the bankrupt is available to pay the creditors, yet the bankrupt is allowed the use and enjoyment of all the equipment necessary for him to continue in employment or in business; of all equipment necessary for domestic use; of an opportunity to earn an income required for the reasonable domestic needs for himself and his family.
The court there also has the discretion of whether to order the sale of a house in which a spouse or children are living.
Putting some human face on a cruel law.
New Zealand’s insolvency law provides that no property which a bankrupt holds as a trustee shall pass to his trustee in bankruptcy.
War pensions, joint family homes social security benefits, to name a few, are beyond the clutch of the assignee/trustee in bankruptcy.
In Switzerland, there are no personal guarantors.
People who want a housing loan from a bank have to take up an insurance to cover the loan.
In this context, we are talking about the ordinary bankrupts, not the guarantors of loans.
There should be a distinction between an ordinary insolvent debtor and a bankrupt guarantor.
The latter in Malaysia must be treated more humanely.
Who is the responsible party then, one who should be punished for not paying back the loan? The borrower, of course.
Not the guarantor.
If and when the government decides to have a thorough look at the existing bankruptcy legislation in Malaysia, may we plead that they will it do it fast, please? The guarantors of loans are the pariahs of society because they were kind and considerate; on hindsight, they should not have signed on those dotted lines, relative or otherwise.
Repair the law soonest.