Your Guide to Understanding Debt Collection Laws in Malaysia

Key Takeaways:

Debt collection is legal in Malaysia, but it must comply with fair practices and regulatory guidelines.
The Limitation Act 1953 sets a 6-year time limit to file a legal claim for most debts.
The Debtors Act 1957 provides additional enforcement tools, such as arrest, examination of debtors, and attachment of property after a court judgment.
This limitation period can be reset if the debtor acknowledges the debt or makes a partial payment.
Creditors can escalate recovery through bankruptcy, winding-up, seizure and sale, garnishee proceedings and other enforcement methods if the debtor refuses to pay.
Legal action is not possible for expired debts, but informal negotiations may still be pursued.
Ethical conduct and lawful procedures are critical — debt collection must not involve threats, harassment, or privacy violations. Use lawyers instead of shady third party debt collection agencies.

Introduction

Recovering unpaid debts is a legal process in Malaysia, but it must be done lawfully.

Creditors have the right to pursue debts, but debt collection must comply with statutory regulations that protect both creditor rights and debtor dignity.

Whether you’re collecting a trade invoice, enforcing a loan, or dealing with persistent non-payment, knowing what the law allows and where the limits lie is essential.

This article answers key questions about debt recovery timeframes, third-party collection, legal limits, and how debt collectors should act under Malaysia’s fair practice guidelines.

Common debt collection practices in Malaysia

In Malaysia, debt collection typically follows a structured process aimed at encouraging repayment while avoiding legal escalation.

Common steps include:

Initial contact: Creditors contact the debtor via phone, email, or written notice to remind them of the overdue payment.
Negotiation and repayment plans: If the debtor is unable to repay in full, a repayment plan may be proposed. Instalments may be tailored based on the debtor’s financial situation, such as income or health status.
Letter of Demand (LOD): If earlier attempts fail, contact a lawyer to commence proceedings with a formal LOD. This document gives the debtor a final opportunity to settle the debt before legal action is initiated.
Legal action: If the debt remains unpaid, your lawyer may commence recovery proceedings all the way up to court proceedings. The enforcement method chosen will depend on the nature of the debt and the debtor’s financial position.
Compliance with regulations: Whenever possible, use LEGAL debt recovery methods. 3rd party debt collectors that use methods involving harassment, intimidation, or privacy breaches are strictly prohibited under Malaysian law and Bank Negara Malaysia’s guidelines.

Also read:

What is the Debtors Act?

The Debtors Act 1957 is a key piece of legislation in Malaysia that outlines legal measures available to creditors after obtaining a court judgment against a debtor. It allows for certain enforcement actions to be taken, particularly when a debtor fails to repay as ordered.

Key provisions under the Act include:

Section 6: Permits the arrest and examination of a debtor who does not appear in court.
Section 19: Allows the attachment of the debtor’s property to satisfy a judgment debt.
Section 21: Enables the sale of perishable goods, where applicable.
Provisions also exist for arrest before judgment and for adding enforcement costs to the judgment amount.

While the Act gives creditors tools to pursue recovery, these measures are typically used after a judgment has been issued and should be exercised with care and legal guidance.

What is the Limitation Act?

In Malaysia, the Limitation Act 1953 sets out the time limits within which a creditor must take legal action to recover a debt. If no action is taken within this period, the creditor may lose the legal right to sue.

Under Section 6(1)(a) of the Act, legal proceedings must be started within six years from the date the debt becomes due. This applies to most contractual debts, including unpaid loans, goods, services, and banking facilities.

After the six-year period:

The creditor can no longer take legal action in court to recover the debt.
The debt may still be pursued informally, but without legal backing.

However, the limitation period may be reset if the debtor acknowledges the debt in writing or makes a partial payment. In such cases, a new six-year period begins from the date of acknowledgement.

Period of limitation for a banking or trade debt

For banking and trade debts, the same six-year limitation period under the Limitation Act 1953 applies. This includes unsecured debts such as:

Credit card balances
Personal loans
Overdue payments for goods or services

As stated in Section 6(1)(a), legal action must be taken within six years from the date the debt becomes due. Once this period expires, the creditor cannot initiate a civil suit unless the debt has been acknowledged or partially paid.

For example, if a client owes RM100,000 for goods delivered in 2017 and no action is taken, the right to sue expires in 2023 — unless the debtor recognises the debt in writing, which resets the limitation period.

Can I sue after 2 years?

Yes — as long as the six-year limitation period has not expired, you may still take legal action to recover the debt.

If your debtor has failed to respond to reminders or repayment requests, it’s advisable to act sooner rather than later. Before filing a claim, it’s standard practice to issue a Letter of Demand (LOD). This letter formally notifies the debtor of the amount owed and provides a final opportunity to settle the debt, often within 14 days.

At Rule & Co., we recommend conducting background checks and attempting pre-court debt recovery before proceeding with court action. Early intervention can lead to faster, lower-cost outcomes and, in many cases, avoid litigation altogether.

Can I sue after 6 years?

In most cases, no. Under the Limitation Act 1953, creditors cannot initiate legal proceedings more than six years after the debt becomes due. Once this time passes, the claim is considered “statute-time-barred.”

However, there is one exception: If the debtor acknowledges the debt in writing or makes a partial payment, the six-year limitation period restarts from that date.

While you can still attempt to negotiate payment after six years, you will not have legal grounds to sue unless the limitation period has been revived. This applies to all contractual debts, including those from personal loans, credit facilities, and trade agreements.

Do debtors need to pay a 10-year-old debt?

In most cases, no. If a debt remains unpaid and no legal action is taken within six years, it becomes unenforceable under the Limitation Act 1953.

Even if a creditor or collection agency continues to request payment, the debtor is not legally obligated to pay. However, if the debtor acknowledges the debt in writing or makes a payment, the limitation period resets, and legal action may once again be possible.

This is why it's important for creditors to monitor timelines carefully; and for debtors to be cautious about confirming old debts without legal advice.

When is a debt written off?

In Malaysia, most unsecured debts are considered time-barred after six years if no legal action has been taken. Once this limitation period expires, the debt is effectively written off in the legal sense, meaning the creditor can no longer sue to recover the amount.

However, this does not mean the debt is automatically erased. It may still remain on the debtor’s credit record or be pursued informally. The limitation period can also be reset if the debtor acknowledges the debt or makes a part payment.

Can the period of limitation be extended?

Yes: under specific circumstances, the six-year limitation period under the Limitation Act 1953 can be extended.

The limitation clock resets if the debtor:

Acknowledges the debt in writing, or
Makes a partial payment towards the outstanding amount

In such cases, the six-year period starts again from the date of the acknowledgement or payment. This provision prevents debtors from avoiding liability simply by waiting out the timeframe, especially when they’ve shown signs of willingness to pay.

What happens if debtors ignore your lawyer?

Ignoring a debt can lead to serious legal consequences. If a debtor continuously avoids repayment despite reminders or formal notices, the creditor may escalate the matter by taking legal action.

If the debtor fails to respond to a Letter of Demand or ignores a court summons, the court may issue a summary judgment in favour of the creditor. This could lead to further enforcement actions, such as:

Bankruptcy proceedings (for individuals)
Winding-up proceedings (for companies)
Garnishee orders (to seize funds from bank accounts or salary)
Order for Seizure & Sale (to seize assets belonging to a debtor)

It's in both parties’ best interest to resolve disputes early. Once court proceedings begin, the options for informal resolution become limited.

What if the debtor cannot afford to pay?

Before initiating legal action, it’s important to consider the debtor’s financial position. If the debtor has no meaningful assets or income, suing may lead to a court order, but no actual recovery.

That said, there are legal remedies available when a debtor claims to be unable to pay:

Bankruptcy proceedings (for individuals owing RM100,000 or more): This can freeze financial activity and compel the debtor to settle or face long-term legal and financial consequences.
Winding-up proceedings (for companies owing RM50,000 or more): This involves liquidating the company’s assets to pay off outstanding debts.
Garnishee proceedings: If the debtor has a known source of income or active bank account, a court order can redirect those funds to repay the debt.
Seizure & Sale proceedings: If the debtor has known assets; a court order can be taken out to seize and sell the assets to satisfy the judgment sum.

Conclusion: Navigating debt collection with legal confidence

Debt collection is a necessary but sensitive process. Timing, legal compliance, and communication strategy all play a vital role in achieving a successful outcome, especially in a regulatory landscape like Malaysia’s, where debtor protections and legal limits are clearly defined.

Understanding your rights under the Limitation Act 1953, following the correct procedures, and engaging the right legal support can help you recover outstanding amounts while maintaining professionalism and integrity.

At Rule & Co., we assist individuals and businesses in navigating debt recovery with confidence - from precourt debt recovery to enforcing court judgments. If you're facing challenges with debt recovery, speak to our legal team. We'll help you take the right steps, the right way.