The process: Once you have decided to file for bankruptcy, you need to approach a lawyer to file a proposal in the court, along with the necessary documentation. After analysing if the conditions for filing have been met, the court may accept or reject the petition. Once you file the petition, a hearing date is announced and the court appoints an interim receiver who takes immediate possession of the property of the debtor. Aishwarya Satija, research fellow, Vidhi Centre for Legal Policy, an independent legal advisory group, explains: “Under the IBC, there’s an automatic stay mechanism in place. But under the current laws, you can apply for a stay order from the court, and it can give a stay on any legal proceedings against the property or assets of the debtor.”
Adjunction: On the hearing date, if the court finds that your petition is satisfactory, it will pass on “order of adjunction” which will make you – the debtor – an undischarged insolvent. After this, the court-appointed officer will sell off your property, if any. The money recovered after the sale will be distributed among the debtors. Adds Borah: “The distribution will be made in order of priority. First bankruptcy expenses, workmen’s dues, secured creditors and unpaid dues of employees will be distributed, and after that, any surplus leftover will be distributed to Central Government and State Government. In case the bankrupt has any past income tax outstanding liability, the same will be paid if there is any surplus available after discharging other creditors in the order of the priority. The remaining income tax liability after the distribution will cease to exist.” It is important to note that while the insolvency proceedings are pending before the court, you can apply for a minimum maintenance amount but it is a discretionary relief that varies from case to case.
Finally, you need to collect the “absolute discharge certificate” from the court, which will happen only once the entire process of distribution is finished. The court considers many parameters; for instance, is the insolvency resulted due to misfortune. Was there any fraudulent activity or dishonest conduct on part of the debtor? After this, remaining, unpaid debts are cancelled. Creditors cannot force him to repay the debt amount. You may not be able to get a clean chit regarding all debts, if you owe the government or have committed any financial fraud, you will have to cough up the money. Satija says: “The criteria to establish your inability to pay the debt, takes time too.”
While it isn’t an easy decision, the process is also complicated and time-consuming especially since we are stuck in the older law. Not many have walked down this path, partially because of the social stigma, partly because of old rules, partly due to fear of approaching lawyers and courts. Ajay Shaw, partner, DSK Legal, says: “There is why there is an immediate need to usher in the individual insolvency provisions under the IBC. The IBC is a composite framework that contemplates a fair and orderly process for dealing with the insolvency situation for individuals. It is expected to make the process more time-bound than what the current laws provide.”