In India, filing for bankruptcy is not very popular, but it can be a good option for those who are heavily indebted and cannot see any chances of repayment in the future. This article gives you a gist on how to file for bankruptcy.
By: Melena Janet Jeen R., 4th Year, BBA.LLB (Finance and Business Hons.), Alliance University.
Anyone unable to pay-back the debts in any way will have to declare them ‘bankrupt’. This relives the person/company (the debtor) from the legal obligation to pay the creditors.
There are two types of insolvencies –
Cash flow insolvency – The debtor suffers the lack of financial liquidities which makes it impossible to repay debts.
Balance sheet insolvency – This type of insolvency occurs when a person or an organization does not acquire enough assets to pay all their debts.
Steps to file for bankruptcy:
- Balance-Sheet: Prepare a balance sheet. The courts will want to confirm that the company or individual is not in a position to pay off the debts in any alternative way. The balance sheet acts a proof of the transactions and shows if there are any assets left in the company.
2. Legal Advisor: Always consult a professional i.e. a legal advisor in this case. The advisor will study your company’s balance sheet and look into the possibilities of winning the case at court. Having better field knowledge, the advisor will be able to give us more insights into the case.
Law Suit: Final step is to file a law-suit for bankruptcy status. If you have debts of more than 500 INR, you can file for bankruptcy in court. The company will have to hire a lawyer and file the case under the Provincial Insolvency Act (If you live in Mumbai, Kolkata, or Chennai, you will be governed by the Presidency Towns Insolvency Act, 1909; for all other places in India, you will be governed by the Provincial Insolvency Act, 1920) and take the case to court. If the judgement is in the favor, then the company will be relieved from all the debts. While the insolvency proceedings are pending before the court, you can apply for a minimum maintenance amount for your own and your family’s survival.