Bankruptcy is a formal, court-driven process under the Insolvency Act 1967 and the Insolvency Rules 2017. Each step has strict requirements, and errors in the paperwork are a common reason petitions fail. This guide sets out the sequence so you know what to expect and what to prepare.
The RM150,000 bankruptcy threshold was announced in Budget 2027 (9 October 2026, speech paragraph 80) for "beginning 2027". It is not yet law: no amending bill, gazette or commencement date has been published. Until the Insolvency Act 1967 is amended, the minimum debt for a creditor's bankruptcy petition remains RM100,000. The RM50,000 winding-up threshold under section 466 of the Companies Act 2016 is unchanged. We will update this page when the amendment is gazetted.
Before you start: is bankruptcy the right tool?
Bankruptcy is available only against individuals, including sole proprietors, partners and personal guarantors. Social guarantors are protected. The debt must meet the threshold, and you should have a realistic view of what bankruptcy will achieve. The Director General of Insolvency takes control of the bankrupt's assets for the benefit of all creditors, so you will share in any recovery rather than be paid first.
For many creditors the real value is leverage: a properly served bankruptcy notice often prompts an offer. If the debtor is a company, the parallel tool is winding-up; see winding-up a company over RM50,000.
Step 1: obtain a judgment
A bankruptcy notice is normally founded on a final judgment or order for a sum of money. If you do not have one, begin with a letter of demand and a civil claim. The judgment must be for a debt that is liquidated and still unpaid.
Step 2: issue the bankruptcy notice
The bankruptcy notice is filed at the High Court and requires the debtor to pay the judgment debt, or settle it to the creditor's satisfaction, within the time stated in the notice. The notice must state the amount accurately. Overstating the sum, or including amounts not covered by the judgment, can invalidate it.
Step 3: serve the notice personally
The notice must generally be served personally on the debtor. Where personal service fails after genuine attempts, the court can allow substituted service, for example by advertisement or posting at the last known address. Keep a detailed record of every attempt, because the affidavit of service will be scrutinised.
Step 4: the act of bankruptcy
If the debtor does not comply with the bankruptcy notice within the time allowed, and does not have it set aside, the debtor commits an act of bankruptcy. The debtor may apply to set aside the notice, typically by claiming a counterclaim, set-off or cross-demand equal to or greater than the judgment debt. Expect that argument if the commercial relationship was disputed.
Step 5: present the creditor's petition
A creditor may then present a petition, provided the conditions in the Act are met. In outline:
- The debt owed to the petitioning creditor, or creditors jointly, is at least the threshold, currently RM100,000.
- The debt is a liquidated sum payable immediately or at a certain future time.
- The act of bankruptcy occurred within six months before the petition.
- The debtor is domiciled in Malaysia, or was resident or carried on business here within the period the Act specifies.
The petition is verified by affidavit and must also be served on the debtor.
Step 6: the hearing and bankruptcy order
At the hearing the court considers proof of the debt, service and the act of bankruptcy. If satisfied, it makes a bankruptcy order. From then on, the Director General of Insolvency administers the estate and creditors lodge proofs of debt. Individual enforcement against the bankrupt generally stops.
Timeline and cost
From bankruptcy notice to order, matters commonly run for several months, longer where service is difficult or the debtor contests. There are court fees, deposits payable to the Insolvency Department, and legal fees. Weigh these against what you are likely to recover; our cost to sue for a debt article and debt claim calculator help with the arithmetic.
What Budget 2027 changes
If the RM150,000 threshold is enacted, step 5 will require a larger debt. Creditors owed between RM100,000 and RM150,000 by an individual should check whether their judgment is in hand and whether a bankruptcy notice can be issued before the amendment commences. Whether a petition already on foot continues under the old figure will depend on any transitional provisions, which have not been published. See Budget 2027 and the bankruptcy threshold, our bankruptcy threshold guide, and when the change will take effect.
Common mistakes we see
- Bankruptcy notice amounts that include interest or costs not covered by the judgment.
- Thin evidence of attempts at personal service.
- Petitions filed after the six-month window from the act of bankruptcy.
- Pursuing bankruptcy when the debtor is actually a company, or when a simpler garnishee orders would have recovered the money faster.
Our debt recovery service handles bankruptcy and the alternatives, and recommends the route most likely to produce payment.
Frequently asked questions
What is a bankruptcy notice in Malaysia?
A High Court document, normally based on a judgment, requiring the debtor to pay or settle the judgment debt within the time stated. Failure to comply is an act of bankruptcy that allows a creditor's petition.
What is the minimum debt for a creditor's petition?
RM100,000 today. Budget 2027 announced RM150,000 beginning 2027, but the amending law had not been gazetted as of 16 October 2026.
How long after the act of bankruptcy can I file the petition?
The act of bankruptcy must have occurred within six months before the petition is presented.
Will I get paid first if the debtor is made bankrupt?
No. The Director General of Insolvency administers the estate for all creditors, who share according to the statutory order of priority.