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Laws regarding bankruptcy in India
June 16, 2024Bankruptcy within the legal context refers to the situation where individuals declare their inability to meet their financial obligations. This status relieves debtors from the legal responsibility of repaying their debts to creditors.
What is the law regarding bankruptcy in India?
The Indian parliament recently enacted the Insolvency and Bankruptcy Code of 2016, replacing the existing bankruptcy laws. This new code encompasses various entities such as individuals, companies, limited liability partnerships, and partnership firms. It has also made amendments to the Companies Act of 2013, becoming the primary legislation governing corporate insolvency.
Under the new code, a new category of professionals known as insolvency professionals has been created. These professionals assist insolvent companies and banks in facilitating a smooth takeover and managing the liquidation process. Additionally, the code establishes the Insolvency and Bankruptcy Board of India to regulate insolvency professionals and information companies responsible for storing credit information on corporates. To address insolvency cases, two authorities have been designated – the National Company Law Tribunal for companies and limited liability partnerships, and the Debt Recovery Tribunal for individual and partnership firms.
Here are the steps to file for bankruptcy as an individual:
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Furnish your balance sheet: As bankruptcy involves legally declaring one's inability to fulfill debt obligations, it must be substantiated in court. The court relies on evidence, which in this case would include the assets and liabilities you possess.
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Engage a Legal Advisor: For optimal results, seek legal advice from a banking/finance lawyer to review and assess your balance sheet and situation. They can advise whether to file individually or jointly if married.
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File for Bankruptcy Status: Work with your attorney to initiate the bankruptcy proceedings necessary for declaring yourself bankrupt and receiving relief from creditor pressure. If successful, bankruptcy status can provide valuable respite.
Advantages of filing for bankruptcy include:
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Protection from creditors' debt collection efforts, including phone calls, lawsuits, and letters.
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Discharge of obligation to repay dischargeable debts.
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Capability to go through the bankruptcy process without losing personal property.
Disadvantages of filing for bankruptcy include:
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Financial disruption that can impact present and future plans.
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Liquidation of all assets, with the proceeds being used to settle creditors' claims.
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Loss of credibility in the eyes of creditors due to the acknowledgment of default status.
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The costliness of the bankruptcy process.
How to avoid bankruptcy:
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Seek advice from a financial advisor who can help you manage your situation effectively by identifying hidden sources of funds and assisting in debt disposition.
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Consider negotiating with your creditors, as they may prefer to avoid the bankruptcy option. Demonstrating potential future cash flows may help persuade them to cooperate.
In conclusion, understanding the laws regarding bankruptcy in India is crucial for individuals and entities facing financial challenges. Implementing appropriate strategies can help navigate the complexities of insolvency while minimizing its negative consequences.
Greater Kailash - 1, Delhi
5 years
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.
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