Bankruptcy, failure, collapse, or ruin are all synonymous with insolvency. It is the worst nightmare for both creditors and debtors. For someone who is facing a severe financial problem and risk becoming insolvent, here we present you with a few options that you can consider to satisfy insolvency legally. But before we talk about resolving financial difficulties and debts, let’s understand what personal insolvency means. According to the Insolvency Act, personal insolvency is defined as not being able to pay debts by the due date. To put it more clearly, if the creditor makes a statutory demand for an unpaid debt to the debtor and the debtor is unable to pay back within the stipulated time, he/she (the debtor) is declared insolvent.
Before we answer how personal insolvency can legally be satisfied, let us define the same. Personal insolvency is said to be legally satisfied when the debtor pays up to the extent possible concerning the outstanding debt amount and creditors receive whatever possible for the money that they lent, as well as the process has been legally and independently administered. The creditor cannot take any further legal action to collect money from the debtor in such a case.
In India, the Insolvency and Bankruptcy Board of India (IIBBI) under the Insolvency and Bankruptcy Code, 2016 (IBC 2016), is the regulator for overseeing insolvency proceedings under the Jurisdiction of Indian Government. It was established on 1st October 2016. It takes care of legal code related to insolvency resolution. Its objectives include promoting entrepreneurship, ensuring the availability of credit while striking a balance between all stakeholder’s interests.
After the enforcement of the Insolvency and Bankruptcy Code 2016, the debtors chase creditors and not the other way round. The IBC has clearly stated the audience it will cater under its umbrella. As per the code, there are separate adjudicating authorities to pursue insolvency resolutions in their ambit. The Debt Recovery Tribunal (DRT) is the adjudicating authority to handle and resolve insolvency and bankruptcy incidences with regard to individuals.
Based on the systems set by such institutions, we can now answer the primary question of how one can satisfy personal insolvency legally. There are, in general, three ways to meet personal insolvency legally – Bankruptcy, individual voluntary arrangements (IVAs), and debt relief orders. The first method involves filing bankruptcy. In this situation, the debtor’s assets are auctioned or sold to recover the outstanding debt. Whatever collections are made by selling the debtor’s assets are used to pay back creditors to satisfy the outstanding amount. This option requires the presence of a trustee who must be an insolvency practitioner for administration.
The second method, individual voluntary arrangement (IVA), is one of the most popular methods. It was introduced under the Insolvency Act as an alternative to bankruptcy. This arrangement allows debtors to create a proposal for creditors for payment within the next five years. The debt payment can be made through the realization of the debtor’s assets or from a portion of their salary or a combination of both within the given period. On such an agreement with creditors, the debtors are free from the risk of being charged with a legal case by creditors. Hence, this method gives more security and ease to debtors and thus is a commonly used way of satisfying personal insolvency.
The third method, debt relief order, was also introduced under the Insolvency Act in the year 2009. This option came post high increase in incidences of personal insolvency cases. In this method, a debt relief order can be obtained, provided certain conditions are met.
If a debtor owes less than the min debt level set by the government in the region and has assets or income or both below a certain standard may receive such relief order upon complete investigation. In the UK, the debtors eligible for a relief order should have a maximum debt amount is £20K, and the maximum value of debtor’s asset is £1k with monthly income below £50. Once the debtor obtains a relief order, the creditor cannot take any legal action for the money owed.
Apart from these three standard methods, there are two more options that people can explore. People facing a financial burn can also lookup for debt management plans and administration orders. Both of these are capable of ensuring full payment to creditors but are not a part of the Insolvency Act. Taking professional consultation in time can help prevent debt burden from both individuals as well as corporates and avoid the problem of insolvency in the very first place.
There are many software and services which help resolve insolvency in a time-bound approach. These services draft applications for initiating the insolvency resolution process, manage creditor claims, sets up meetings with stakeholders, and obtains approvals on loan repayment after creating the roadmap for implementation and, thus, ensure loan repayment. This is where Solvemint comes into the picture.
Solvemint provides an Online Software for Corporate Insolvency Resolution Process (CIRP) Management for Insolvency Professionals & Resolution Professionals in India and manages insolvency issues through – Stakeholder Management, Claims and EOI Management, and Status Page, Reporting & Analytics. It comprises a complete suite of software to ease out the process of CIRP.
A great many new undertakings and approaches have helped to reduce insolvency complexities. Several essential tools are used during the IVA process to provide advice and services. The use of insolvency software is vital to begin the insolvency process and to support debtors. A user-friendly interface and features like automatic reporting help you to reduce your workload significantly.
Features of this Insolvency or Bankruptcy software are as follows:-
• Evaluates the best debt solution
• Insolvency and bankruptcy code compliant
• Collect payments and redistributes to creditors
• Tracks all incoming and outgoing finances
• User-friendly and completely secure
• Automated emails and texts
• Integration with apps and services
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