Who can file for bankruptcy?
By definition, a bankrupt or an insolvent person is the one who is unable to pay his debts. However, you can file an insolvency petition only if your liabilities exceed your assets, making it impossible for you to pay the debt. Hence, this option is not open to all the people who are in debt.
If a petition is filed on flimsy grounds or you are unable to prove that you cannot pay the debt, your petition will be dismissed. Besides, you can file for bankruptcy if you have been arrested as per a court order or your property has been attached. You are eligible to file for insolvency even if you have not been arrested or the property has not been attached, but the debt amount should exceed `500.
Procedure for filing
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.
A petition for insolvency can be filed in a particular court only if you have resided in that place or have conducted business for a year. Bankruptcy is filed in an individual capacity without including the spouse, but first, you will have to hire a lawyer to help prepare the petition.
This document should have a statement that you are unable to pay your debts, the place where you reside or conduct the business, details of the court order if you have been arrested, details of pecuniary claims against you, as well as the list and addresses of creditors.
After the suit has been filed, the court shall fix a date for hearing. Here, you will be required to produce books of accounts, an inventory of your properties and the list of creditors. The court will examine your conduct, dealings and properties in the presence of the creditors. This gives the latter an opportunity to examine if you have made a full disclosure of your real estate holdings.
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. Once you are declared insolvent and the public examination concludes, you can file an application of discharge, which requests the removal of the status of 'insolvency'.
There is no fixed period within which you will be absolved of this status since it depends on the length of the proceedings. The courts are empowered to set a time frame within which the application should be filed, after which the court does not entertain it.
The biggest advantage of filing for insolvency is that your creditors cannot chase you. Instead, they will be directed to the court in the which the insolvency petition is being processed.
While the matter is in the court, creditors cannot file separate suits against you without prior permission of the court. However, if you have secured credit against collateral, the lender need not take the court's permission to acquire the mortgaged asset. In all other cases, the creditors will have to follow the court's directives.
On being declared insolvent, the court will appoint an officer, known as official assignee or receiver, who will take charge of your property, which will be divided among creditors to pay your debts. You will not be associated with your property once the official receiver takes charge.
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