Declaring personal bankruptcy under India’s Insolvency and Bankruptcy Code (IBC) involves a systematic procedure. The process is initiated once the debtor is unable to pay his debts and decides to apply for bankruptcy.
Step 1: Assessment
The first step towards filing for bankruptcy is conducting a comprehensive self-assessment of your financial situation. This involves listing down all outstanding debts and all assets including income, property, investments and more. The debtor must determine if they are truly insolvent.
Step 2: Engaging a Legal Representative
Upon determining insolvency, the debtor may seek legal assistance to understand the implications of bankruptcy, its advantages and disadvantages and decide whether it is the best route forward.
Step 3: Application Filing
The debtor needs to file an application to the Debt Recovery Tribunal (DRT). The application needs to contain all necessary documents such as the statement of affairs, list of creditors, and assets among others.
Step 4: Admission of Application
After submission of the application, the DRT reviews it. If it finds that the application meets all requirements, the DRT will admit the application. Once admitted, an interim-moratorium period commences which lasts until the bankruptcy process is concluded.
Step 5: Appointment of Resolution Professional
Upon application admission, the DRT appoints an insolvency resolution professional who takes over the debtor’s assets and affairs. The professional provides a public notice inviting claims from creditors and prepares a report with the debtor’s financial position.
Step 6: Submission of Report
The resolution professional submits his report to the DRT. Based on the report, the DRT will either pass an order for bankruptcy or reject the application if it deems that bankruptcy isn’t required.
Step 7: Discharge from Bankruptcy
Upon completion of the bankruptcy process set out by DRT, the debtor will be discharged from bankruptcy. This usually happens when all assets are liquidated and distributed among the creditors.
It is important to note that declaring bankruptcy should be the last resort for any individual as it immensely affects their credit score and financial reputation. Always seek advice from your legal representative to consider other debt management options before proceeding with bankruptcy.