The ability to file for bankruptcy quickly and easily can aid thousands of people in starting over financially. Envision yourself in a dire situation where you’ve fallen into a debt trap and have used up all of your available funding options. In such a case, bankruptcy can be your last resort.
Indian law does allow for people to seek bankruptcy protection, but the procedure is not as simple as it is for businesses according to the country’s Insolvency and Bankruptcy Code (IBC). Individual bankruptcies are also covered by the IBC’s regulations, but most people don’t know about them.
We explain how the IBC will alter the current bankruptcy legislation and how it can work to your benefit.
Chapter 11 bankruptcy
The Provincial Insolvency Act of 1920 applies to the rest of India, whereas the Presidency Towns Insolvency Act of 1909 applies to those who live in Mumbai, Kolkata, or Chennai. The IBC is intended to eventually replace both of these statutes, which are very similar to each other.
If you have debts totaling more than Rs. 500, and you can’t afford to make the payments, you can declare bankruptcy under the Provincial Insolvency Act. “After analysing whether the grounds for filing bankruptcy have been met, the court may accept or reject the application. An interim receiver takes control of the debtor’s assets until a ruling on the application. If the application is granted, the court will prevent any further action from being taken against the debtor’s property or assets. That is to say, you can seek a stay order to prevent your creditors from taking any further collection action.
After your application is approved, ownership of your assets will go to the “receiver.” “Judge-appointed, or judicially appointed. If your creditors and the court have not accepted a solution you have made, this official will divide your assets among them. You will be “discharged from bankruptcy” once this procedure is finalised “by the court, allowing you to start a new chapter in your life and financial situation free from harassment from your prior creditors.
Will You Be Able to Retain Your Business if You’ve Filed for Bankruptcy?
You can ask the court for a minimum maintenance amount to cover your basic needs while the insolvency processes are ongoing.
Unfortunately, there are many limitations on your freedom until you receive your bankruptcy discharge. Under present legislation, an undischarged bankrupt is disqualified from serving as a director of a firm, holding public office, being elected to or serving on a local governing body, etc. All restrictions and limitations will be lifted upon her discharge.
It’s important to keep in mind that the method does not erase all of your debts. Debts specified under relevant statutes, such as any debt due to the government, any debt incurred by means of any fraud or fraudulent breach of trust, any debt in respect of which the insolvent has obtained forbearance by any fraud, also need to be cleared.
Read More : Insolvency vs. Bankruptcy: Understanding the Distinctions with CA. Devendra Jain
Can you be sent to jail?
No. In India, there are no debtor’s jails because doing so would be against the country’s constitution. Yet, you risk incarceration for any form of deception committed in relation to your financial obligations. If you obtain a mortgage with forged documents or a company loan and then transfer the funds to a friend on the basis of fictitious business expenditures, you could face criminal charges for fraud.
What will be altered?
There are two major alterations to the bankruptcy procedure that will be implemented with Insolvency and Bankruptcy Code IBC for people.
- New deadlines will be imposed on the procedure that aren’t covered by the existing law.
- Once an insolvency application has been filed with the “adjudicating body,” all debt collection activities must cease immediately.
The current laws leave the decision of whether to issue a stay up to the discretion of the court.
Banks are shifting their focus from corporate lending to consumer lending due to mounting non-performing assets. The amount of personal loans issued by Indian banks has increased dramatically from January 2014, when they issued 10 trillion, to January 2019, when they issued 21 trillion. As Indian households take on more debt, the number of cases of delinquency and bankruptcy is expected to rise, highlighting the importance of a strong bankruptcy law. Thousands of debtors can get a fresh financial start with the help of a streamlined bankruptcy procedure.