Laws regarding bankruptcy in India
What is bankruptcy?A bankruptcy is a situation where an individual legally announces that he is not in a position to service his debt obligations. The status of being 'bankrupt' relieves debtors from the legal obligation of debt payment to creditors.
What is the law regarding bankruptcy in India?The Indian parliament has recently passed the Insolvency and Bankruptcy code 2016. The new code has replaced existing bankruptcy laws and covers individuals, companies, limited liability partnerships and partnership firms. It has also amended the Companies Act, 2013 to become the overarching legislation to deal with corporate insolvency.
The new code has created a new class of insolvency professionals who will help sick companies and banks with a smooth takeover of the insolvent company and manage the liquidation process.
The code has introduced a new entity, the Insolvency and Bankruptcy Board of India, which will regulate insolvency professionals and information companies - those which will store all the credit information of corporates.
It has also established two authorities to deal with insolvency. The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships, while the Debt Recovery Tribunal will do the same for individual and partnership firms.
Steps to file for bankruptcy as an individual1. Furnish your balance sheet: Since a bankruptcy involves you legally announcing your inability to service your debt obligations, it has to be proven in a court. Court establishes its decisions on evidences and in this case evidence will be in the form of the assets and liabilities you hold.
2. Hire a legal advisor: Get an expert advisor on board. Your advisor will study your balance sheet and explore the possibility establishing your case in the court. The advisor will provide an insight on individual filing or joint filing in case you are married.
3. File a proceeding for bankrupt status: You should ask your lawyer to file for a bankruptcy proceeding. Once you win the case, you will be deemed bankrupt and will be relieved from continuous hounding of creditors.
What are the advantages of filing for bankruptcy?
- Filing for bankruptcy will preventing creditors from taking action to collect their debts, and from repossessing property such as cars, including calling you, suing you, or sending you letters.
- You will be able to discharge your obligation to repay any of your dischargeable debts.
- You will be able to go through the bankruptcy process without losing any of your property.
What are the disadvantages of filing for bankruptcy?Financial distress caused by bankruptcy can disrupt your plans - both for the present and the future.
- All your assets are liquidated in case of bankruptcy. The amount obtained is simply drained out in settling creditors' claims.
- Once you file a suit for bankrupt status, the message is loud and clear that you are a defaulter. You lose credibility in the eyes of creditors
- Filing for bankruptcy is a costly affair
How to avoid bankruptcy?Get advice from a financial advisor: Financial advisor can help you manage your situation better. An advisor can not only identify hidden sources of fund but can also help in disposing of some liabilities.
Negotiate with your creditor: If you feel that buying little time might improve your situation a bit, negotiate with your creditor. Under normal circumstances, a creditor would not like you to file for bankruptcy and if you are able to convince him regarding your future cash flows, he will definitely listen to you.
These guides are not legal advice, nor a substitute for a lawyer
These articles are provided freely as general guides. While we do our best to make sure these guides are helpful, we do not give any guarantee that they are accurate or appropriate to your situation, or take any responsibility for any loss their use might cause you. Do not rely on information provided here without seeking experienced legal advice first. If in doubt, please always consult a lawyer.
Banking / Finance Law Articles
Get Started >>
Answers by Our Lawyers
- Can we sell house if it is on loan and father has case against him
- Neighbors toilet leaks from the roof of our toilet.
- Information related registration of Labor Welfare Office
- Got married when husband was minor is it a legal marriage
- My girlfriend's family is abusing & forcing me to marry their daughter