What is Bankruptcy? How Can One File for it in India?

Unlike other powerful economies like US and UK, bankruptcy isn’t as common in India. However, it’s still a good option for an individual who is so indebted that they can’t repay their loans. So, what’s it exactly?

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Understanding Bankruptcy

Bankruptcy is a legal practice in which a person or a company declares that they aren’t in a state to clear their debt. If they are officially declared “bankrupt”, then they aren’t legally obligated to repay their debt. However, their assets are then assessed and measured so that they can be sold to repay a portion of the total debt to the lenders.
The following are the steps that you can take to file for bankruptcy:

• Prepare your balance sheet as it will be required as an evidence in the court that your financial situation is indeed bad which justifies your decision to file for bankruptcy.
• Appoint a legal advisor. They will be able to assess your situation on the basis of the balance sheet and other factors and determine your chances of winning the case with the court or the insolvency professional.
• File a petition with the National Company Law Tribunal.
• An insolvency professional will take up your case for proper resolution.
• A creditors committee will be set up that will consider the interests of both parties (lender and borrower).
• The professional is required to come up with a solution within 6 months. However, if need be, the timeframe can be extended for another 3 months.

Pros and Cons of Bankruptcy

Bankruptcy is rarely a pleasurable experience for someone. It often brings huge mental stress on the filer and they also lose their assets and savings in the process. However, if there is no other option, then it can be an opportunity for starting over.
The only major thing that you need to worry about before filing for bankruptcy is bad credit. This is because when you declare bankruptcy, then it greatly damages your creditworthiness. So, if you ever need a loan in the future, you can expect to have a really hard time.