I am a guarantor. Can I be made bankrupt, and what is a social guarantor?

Years ago you signed as guarantor for a relative's car loan, a friend's housing loan or a company's overdraft. Now the borrower has stopped paying and the bank has written to you. You are worried about bankruptcy. The answer depends on what kind of guarantee you gave.

Who is a social guarantor?

Under section 2 of the Insolvency Act 1967, a social guarantor is a person who provides, not for the purpose of making profit, any of these guarantees:

• a guarantee for a loan, scholarship or grant for educational or research purposes;
• a guarantee for a hire-purchase of a vehicle for personal or non-business use; and
• a guarantee for a housing loan solely for a personal dwelling.

A guarantee of a business loan or a company's facilities is not a social guarantee.

Social guarantors cannot be made bankrupt

A petitioning creditor shall not be entitled to commence any bankruptcy action against a social guarantor (s.5(3)(a)).

Other guarantors: leave of court is needed

For a guarantor who is not a social guarantor, the creditor may only start bankruptcy proceedings with the court's leave (s.5(3)(b)). Before granting leave, the court must be satisfied that the creditor has exhausted all modes of execution and enforcement to recover the debt from the borrower (s.5(4)). These include seizure and sale, judgment debtor summons, garnishment, and bankruptcy or winding-up proceedings against the borrower (s.5(6)). The petition must also give particulars of the borrower (s.5(5)).

The general conditions for any bankruptcy petition still apply, including the minimum debt of RM100,000 (s.5(1)(a)).

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You can still be sued

These protections are about bankruptcy. They do not cancel the guarantee. Under section 81 of the Contracts Act 1950, the liability of the surety is co-extensive with that of the principal debtor, unless the contract provides otherwise. The bank can still:

• sue you on the guarantee; and
• enforce a judgment against you by other means, such as seizure and sale or garnishee proceedings.

What should I do first?

1. Find the guarantee document and the loan agreement it relates to.
2. Check whether it is a social guarantee: what was the loan for, and did you receive any benefit?
3. Reply in writing to the bank's letter, asking for a statement of account.
4. Check the defences: was the guarantee properly signed, was the debt correctly calculated, and was anything changed without your consent?
5. Take advice before signing any settlement or acknowledgement.

Example

A woman guaranteed her brother's car loan for his personal use. He defaults and the bank obtains judgment against both. The bank cannot petition to make her bankrupt, as she is a social guarantor. It can, however, seek a garnishee order against her savings account to enforce the judgment.

Common mistakes

• Ignoring the letter of demand because "they cannot bankrupt me".
• Assuming every guarantee is a social guarantee.
• Signing an acknowledgement of debt that restarts the limitation period.
• Not checking whether the bank pursued the borrower first.

When to speak to a lawyer

Speak to a lawyer as soon as you receive a demand or court papers as guarantor, and before signing anything. See our civil litigation page; you can also contact us.

Frequently asked questions

I was made bankrupt as a social guarantor before the law changed. What now?

Creditors cannot object to the discharge of a bankrupt who was adjudged bankrupt by reason of being a social guarantor (s.33B(2A)(a)). Contact the Insolvency Department about your discharge.

Can the bank sue me before suing the borrower?

Often yes, depending on the guarantee's terms. But bankruptcy against a non-social guarantor needs leave after enforcement against the borrower is exhausted.

Is a guarantee for a company director's own company a social guarantee?

No. A guarantee for business facilities is generally not within the definition.

Sources & fact check

Legal points in this article were checked against the primary sources below. The law can change; this is general information, not legal advice.

1. Insolvency Act 1967 (Act 360), AGC Laws of Malaysia
2. Contracts Act 1950 (Act 136), AGC Laws of Malaysia
3. Malaysian Department of Insolvency (MdI): Bankruptcy (creditor petition threshold, effects, discharge)

Fact-checked on 18 Oct 2026