Category Archive Banking / Finance Law Guide

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Laws regarding bankruptcy in India

What is bankruptcy?

A bankruptcy is a situation where an individual legally announces 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.

What is the law regarding bankruptcy in India?

The Indian parliament has recently passed the Insolvency and Bankruptcy code 2016. The new code has replaced existing bankruptcy laws and covers individuals, companies, limited liability partnerships and partnership firms. It has also amended the Companies Act, 2013 to become the overarching legislation to deal with corporate insolvency.

The new code has created a new class of insolvency professionals who will help sick companies and banks with a smooth takeover of the insolvent company and manage the liquidation process.

The code has introduced a new entity, the Insolvency and Bankruptcy Board of India, which will regulate insolvency professionals and information companies – those which will store all the credit information of corporates.

It has also established two authorities to deal with insolvency. The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships, while the Debt Recovery Tribunal will do the same for individual and partnership firms.

Steps to file for bankruptcy as an individual

1. Furnish your balance sheet:  Since a bankruptcy involves you legally announcing your inability to service your debt obligations, it has to be proven in a court. Court establishes its decisions on evidences and in this case evidence will be in the form of the assets and liabilities you hold.
 
2. Hire a legal advisor: Get an expert advisor on board. Your advisor will study your balance sheet and explore the possibility establishing your case in the court. The advisor will provide an insight on individual filing or joint filing in case you are married.
 
3. File a proceeding for bankrupt status:  You should ask your lawyer to file for a bankruptcy proceeding. Once you win the case, you will be deemed bankrupt and will be relieved from continuous hounding of creditors.

What are the advantages of filing for bankruptcy?

  • Filing for bankruptcy will preventing creditors from taking action to collect their debts, and from repossessing property such as cars, including calling you, suing you, or sending you letters.
  • You will be able to discharge your obligation to repay any of your dischargeable debts.
  • You will be able to go through the bankruptcy process without losing any of your property.

What are the disadvantages of filing for bankruptcy?

Financial distress caused by bankruptcy can disrupt your plans – both for the present and the future.

  • All your assets are liquidated in case of bankruptcy. The amount obtained is simply drained out in settling creditors’ claims.
  • Once you file a suit for bankrupt status, the message is loud and clear that you are a defaulter. You lose credibility in the eyes of creditors
  • Filing for bankruptcy is a costly affair

How to avoid bankruptcy?

Get advice from a financial advisor: Financial advisor can help you manage your situation better. An advisor can not only identify hidden sources of fund but can also help in disposing of some liabilities.
Negotiate with your creditor: If you feel that buying little time might improve your situation a bit, negotiate with your creditor. Under normal circumstances, a creditor would not like you to file for bankruptcy and if you are able to convince him regarding your future cash flows, he will definitely listen to you.

Bydeb

What to do when you are unable to pay Home loan EMIs

Buying a home is one of the most expensive investments you are likely to make in your lifetime. With property rates reaching new heights every year, home loans have been designed to meet your need of owning a house. Once the bank gives you a home loan, they expect you to start paying your EMIs every month until the end of the loan tenure. However what happens if you are unable to pay the EMIs? This guide will tell you what to do if you stop paying your EMIs.
 

Skipping your EMIs

The first thing you need to know is that a bank will not foreclose the loan if you defaulted on one or two EMI payments. Loan foreclosure is the last action a bank wants to exercise. But if you continue to fail to pay your EMIs for three consecutive months, the bank will send you due reminders of the same. Lack of response from your side will prompt the bank to send you a legal notice and you may be termed as loan defaulter.

What happens if you are declared as a loan defaulter?

Once you become a loan defaulter, the bank will start the process of seizing your property. They may auction your property and recover their due amount. The bank usually gives six months of time before auctioning off your house. Within these six months, you can approach the Bank anytime and settle the things out. 

What to do once you are declared as a loan defaulter?

Ask for a moratorium period – If you want to take any action you need to take before this auction. You should meet the bank officer and explain your situation, as to why you are unable to pay the EMIs as of now. Whether due to a health issue or you lost a job, if you feel you can persuade the bank that you will get on track in next 3-4 months, the bank may offer you with a moratorium period for some months.

Loan restructuring – If the reason for your financial woes is the rise in interest rates and you are finding difficulty in managing your EMIs, you can request the bank to restructure your home loan. The bank can increase the tenure of your loan and your EMI would go down.

Loan refinancing – If your bank is not ready to structure your loan and you find some other bank offering loan at a rate which is manageable in your financial arrangement, then you can consider refinancing your loan. However, do calculate your exact expenses in terms of processing charges and other levies.

Liquidating your investments – The final step that you can resort to if the above-mentioned options do not work out is that you liquidate your existing investments such as deposits or mutual funds to pay the EMIs. You can use this amount to make part payment for the loan which will reduce the EMI in future.