Filing for bankruptcy in India is not a very common scenario, but it can be a good option if you are heavily indebted and there are no chances of repayment in foreseeable future. Although Indian society is insensitive towards people who file for bankruptcy, it certainly opens the window for starting afresh. It also helps you avoid continuous chasing by creditors. Read on to understand the implications of bankruptcy filing from individual’s perspective.
What is Bankruptcy?
An individual filing for bankruptcy legally declares that he is not in a position to service his debt obligations. Bankrupt status relieves debtor from the legal obligation of debt payment to creditors.
Steps to file for Bankruptcy as an Individual
If you are in a financial mess and your liabilities are too high as compared to your assets, filing for bankruptcy will act as a restart button. It will give an honest and burden free start to your life as you will be relieved from all the debts. If you are planning to file for bankruptcy, you need to follow certain steps:
- Prepare your balance sheet – Bankruptcy is a legally acquired status and you will have to prove it in court. Court decisions are based on evidence and in this case evidence will be in the form of the assets and liabilities you hold.
- Consult a legal advisor – Talk to an expert advisor on this matter. Advisor will study your balance sheet and explore the possibility of a court case victory. He will give insight about an individual filing or joint filing (with your wife) in case you are married.
- File a Lawsuit for bankrupt status – Ask your lawyer to file a petition under the Provincial Insolvency Act and fight the case in court. Once you win the case, you will be deemed bankrupt and will be relieved from continuous hounding of creditors.
Advantages of Bankruptcy
Getting bankrupt is in no way a desirable state, but it’s not a dead end too. You lose self-confidence and sense of direction, but you can make a comeback with careful planning. Few advantages of filing bankruptcy are discussed below:
Suicide cases as a result of creditor harassment or murder of debtor by offensive creditors are quite common now a day. In either case, financial stress relating to the situation prompts debtor to choose the wrong path. If debtor files for bankruptcy, he can avoid stress and harassment at the same time.
Opportunity to Restart
Before filing for bankruptcy, your focus remains on creditors and you do not have time for planning. Even though all your assets are gone, you still possess your skills and intelligence. As your debts are written off post bankruptcy, you can concentrate on your future plans.
Disadvantages of Bankruptcy
The financial distress due to bankruptcy can disrupt your present and future plans. Few of the disadvantages of bankruptcy are discussed below:
All your assets are lost
In case of bankruptcy, all your assets are liquidated. The amount received is used for settlement of creditors claim. You are left empty-handed which makes a restart very difficult.
Credibility goes for a toll
Once you file a suit for bankrupt status, message is loud and clear that you are a defaulter. You lose credibility in the eyes of creditors. Lack of credibility makes it impossible for you to secure debt in the future.
Cost of Filing Bankruptcy
Filing for bankruptcy is a costly affair as you have to pay for fighting the case. It’s kind of last nail in the coffin and it adds to the existing pain.
How to avoid Bankruptcy?
As its clear that bankruptcy may adversely affect your future life, it’s wise to avoid such a situation. You can use following options as life lines in case you are planning to file for bankruptcy:
- Consult a financial advisor – Financial advisor can help you manage your finances better. He can identify hidden source of fund and can help in getting rid of some liabilities. This two-fold improvement might motivate you to defer bankruptcy decision.
- Negotiate with the creditor – Negotiate with your creditor to buy some time if you sense that buying little time might improve your situation. In normal situation, creditor would not like you to file for bankruptcy and if you are able to convince him regarding future cash flows, he will definitely listen to you.
- Offer to sell your skills against the debt – If you possess saleable skill set, you can offer the same to creditor against debt. If your skill sets align with creditors business, he might agree to your offer.