Bankruptcy is a status of a person or entity that cannot repay the debts it owes to creditors. A court order imposes bankruptcy in most cases, often initiated by the debtor. An individual filing for bankruptcy or insolvency legally declares 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.
In India, there are two Acts that govern insolvency: the Presidency Towns Insolvency Act, 1909 (PTIA), and Provincial Insolvency Act, 1920 (PIA). The PTIA is applicable in Mumbai, Chennai and Kolkata, while the rest of the country comes under PIA. Except for some minor procedural differences, the law concerning insolvency is the same under both the Acts. If you have filed for insolvency in Mumbai, Chennai or Kolkata, the examination will take place only after you have been declared insolvent, while in all other areas, the examination takes place at the time of hearing.
Steps to file for bankruptcy as an individual:
If an individual is in a financial mess and his/her liabilities are too high as compared to his/her assets, filing for bankruptcy will act as a restart button. It will give an honest and burden-free start to individual life as one will be relieved from all the debts. To file for bankruptcy, individual need to consider these steps:
Prepare your balance sheet: Bankruptcy is a legally-acquired status and individual will have to prove it in court. Court decisions are based on evidence and in this case evidence will be in the form of the assets and liabilities that individual holds.
Consult a legal advisor: Indiavidual should talk to legal advisor on this matter. An advisor will study balance sheet and explore the possibility of winning the court case.
File a lawsuit for bankrupt status: One should ask the lawyer to file a petition under the Provincial Insolvency Act and fight the case in court. After winimg the case, he/she will be deemed bankrupt and will be relieved from continuous hounding of creditors.
Advantages of filing for bankruptcy
There are a few advantages that come along with filing for bankruptcy:
Mental peace: The biggest advantage of filing for insolvency is that your creditors cannot chase you. So debtor can avoid stress and harassment at the same time..
Opportunity to restart: Before filing for bankruptcy, debtors do not get enough time for planning their future since the focus remains on creditors. One can concentrate on his/her future plans once debts are written off post-bankruptcy.
Disadvantages of filing for bankruptcy
Here are discussed a few disadvantages of bankruptcy:
All your assets are lost: All your assets are liquidated in case of bankruptcy. The amount obtained is simply drained out in settling creditors' claims. You are left empty-handed which makes a restart highly difficult.
Credibility goes for a toll: Once you file a suit for bankrupt status, the message is clear that you are a defaulter. You lose credibility in the eyes of creditors.