Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor. Bankrupt is not the only legal status that an insolvent person may have, and the term bankruptcy is therefore not a synonym for insolvency.
The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016.
Bankruptcy law is a way for you to get help with debts. It can help you find a new beginning. People often file bankruptcy when they find themselves in a financial situation where their debts have become overwhelming and unmanageable. Bankruptcy provides a legal way to seek relief from these burdensome debts. These debts include credit card bills, medical expenses, job loss, or other financial hardships. It offers a fresh start to rebuild and regain control over your financial life.
Bankruptcy can give you peace of mind by wiping out debts. However, it also affects your credit report and credit score. Some debts, like student loans, may not be erased.
Some of the important terms associated with Bankruptcy Code are discussed below:-
Insolvency Professionals - The Bill proposes to regulate insolvency professionals and insolvency professional agencies. Under the oversight of the Board, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role. Three sets of Resolution Professionals are sought to be appointed Interim Resolution Professional, Final Resolution Professional and Liquidator.
Insolvency Information Utilities - The Code proposes for information utilities which would collect, collate, authenticate and disseminate financial information from listed companies as well as financial and operational creditors of companies. An individual insolvency database is also proposed to be set up for the purpose of providing information on the insolvency status of individuals. It is not clear whether this will dovetail into the existing Central Registry of Securitization Asset Reconstruction and Security Interest of India and/or Central Repository of Information on Large Credits or end up adding to the plethora of registries in India.
Moratorium - One of the most significant features of the Code is the grant of moratorium during which creditor action will be stayed. This is not automatic and has to be granted by the Adjudicating Authority on the recommendation of the Resolution Professional.
Corporate Liquidation - One of the most significant features of the Code is the grant of moratorium during which creditor action will be stayed. This is not automatic and has to be granted by the Adjudicating Authority on the recommendation of the Resolution Professional.