Bankruptcy And Household Financial Vulnerability in Malaysia: An Analysis of Behaviour and Recovery Strategies

This article analyses individual bankruptcy and household financial vulnerability in Malaysia within an increasingly digitalised financial landscape, focusing on the interaction between debt-commitment structures and weaknesses in consumer financial behaviour. Drawing on the intersection of the Life-Cycle Hypothesis (LCH) and Behavioural Finance Theory, the study examines how the appeal of rapid digital credit instruments such as Buy Now, Pay Later (BNPL) exploits cognitive biases and further weakens household financial positions, particularly when households face cost-of-living shocks. Using a qualitative methodology, the study applies thematic analysis to policy documents, official reports, and recent empirical studies (2023–2026). The findings reveal an increase in new bankruptcy cases to 6,776 in 2025, with personal loans remaining the dominant cause. Interim data up to March 2026 continue to indicate a concerning pattern of youth involvement arising from unsustainable debt-based financial management. Against this backdrop, the enforcement of the Consumer Credit Act 2025 and the Second Chance Policy recovery initiative (Fast Track Discharge) in early 2026 represent critical policy responses. The study concludes that strengthening financial resilience requires a paradigm shift from conventional knowledge-based financial education towards financial behaviour formation, holistic credit assessment, and rigorous monitoring of the digital credit market.

Keywords: individual bankruptcy; financial vulnerability; behavioural finance; BNPL; financial resilience; Malaysia

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