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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
How Insolvency and Bankruptcy Code 2016 deals with bankruptcy for individuals? Part 1: Applicability, Processes, Advantages and Disadvantages of filing for Bankruptcy.
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10:05:05 AM, 1st April, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka

    Before we begin to evaluate how Insolvency and Bankruptcy Code 2016 applies to the individuals, the reader should know that the provisions under this code are not in effect for individuals as of now but soon to be implemented. But, the goal of this series of posts is to introduce the basics of bankruptcy processes for individuals under the proposed provisions.

    Debt is a reality of our financial life and sometimes irrespective of our best intentions debt can go beyond control. The proposed provisions under the Insolvency and Bankruptcy Code 2016 (hereafter Code) may give the stressed borrower much needed time to organise finances and opportunity to start fresh.


    The Code is divided into five parts – Part I deals with definitions, Part II deals with Insolvency Resolution and Liquidation for Corporates, Part III Deals with Insolvency Resolution and Liquidation for Individuals & Partnership Firms, Part IV deals with regulations for Insolvency Professionals, agencies etc. and part V deals with miscellaneous.




    APPLICABILITY FOR INDIVIDUALS

    1. The provisions of the Code will be applicable to individuals living in the whole of India except the state of Jammu and Kashmir.

    2. Part III of the Code will applicable for partnership firms and individuals where the debt default amount is not less than a thousand rupees (subjected to change up to one lakh rupees).




    PROCESSES FOR INDIVIDUALS

    The code gives two distinct processes for individuals and partnership firms –

    1. Fresh Start which will give the eligible debtors under a threshold to apply to the Debt Recovery Tribunal (DRT) for debt relief.

    2. Insolvency Resolution which will give the debtor ability to create a repayment plan together with the creditors.

    We will discuss these two processes in depth in the following posts.




    ADVANTAGES OF FILING FOR BANKRUPTCY

    1. Filing for personal bankruptcy gives the debtor structures processes to resolve the debt.

    2. If Fresh Start is approved, the debts are forgiven and the debtor gets a chance to rebuild personal finances.

    3. When someone applies for bankruptcy, the court issues stay on any legal action against the debtor related to the debts. This gives the debtor an opportunity to evaluate all the options to straighten out the finances.




    DISADVANTAGES OF FILING FOR BANKRUPTCY

    1. Filing a bankruptcy leaves a stain on the Credit History for a long time and it may prove to be difficult to create a healthy credit history post-bankruptcy. Getting loans or credit cards can become difficult and the interest rates on the loans will be high.

    2. Filing for bankruptcy may prove to be rather expensive given the legal costs involved.


    3. Bankruptcy may affect your employment opportunities as many employers run credit checks before hiring.


    Related Link
    http://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf

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