Bankruptcy is a legal procedure that involves a business or an individual unable to repay the debts. This process starts with a petition that is filed either by the creditor or the debtor.
All of the assets of the debtor are evaluated to figure out what can help repay the outstanding debt.
Bankruptcy provides a business or an individual an opportunity to begin new by forgiving debts that cannot be repaid. To creditors, it provides a chance to acquire some repayment measures on the Basis of the available assets for liquidation.
Moreover, filing for bankruptcy is beneficial for the overall Economy as it enables companies and people to get a second chance so as to gain access to credit. Once the bankruptcy procedure is completed successfully, the debtor gets the relief from debt obligations.
In May 2016, the Parliament of India approved an Insolvency and Bankruptcy Code 2016. Before this, a clear law for corporate bankruptcy didn’t exist in the country, despite the fact that individual bankruptcy has been existing since 1874.
In comparison to other jurisdictions, India doesn’t have a specific statute legislated or regulation upon bankruptcy that can refer to the conditions of incompetence to meet creditor’s demands.
Declaring bankruptcy can be helpful in relieving legal obligations to repay the debts and save the business, home, and other essential assets on the basis of the bankruptcy petition that has been filed.
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However, this can also decrease the credit rating, which can make it even more difficult to acquire a loan, credit card, mortgage. In severe cases, it can even become difficult for a bankrupt to purchase or rent a house.
Those who are thinking to file for bankruptcy must understand that their credit is already damaged. However, it should be noted that certain chapters can still be on the Credit Report of the bankrupt individual or company for certain years.
In case the person tries applying for a new debt like a mortgage, line of credit, credit card, car loan, etc.; will be displayed on the report, the lender will evaluate the credit report, which can cause problems in acquiring any further credit.