Bankruptcy is a legal process by which individuals or business entities who are unable to repay the debts incurred by them can seek relief from their creditors. The bankruptcy law of India is the Insolvency and Bankruptcy Code 2016. It seeks to consolidate the current laws by creating a single insolvency and bankruptcy law. The code was introduced in the parliament in November 2015 and passed by both the houses of the parliament in August 2016.
In the last two decades or so, there has been a steady increase in the number of cases filed under the bankruptcy law. As a result, the demand for Insolvency and bankruptcy law lawyer have also grown manifold. There are a lot of consumer bankruptcy lawyers and law firms specializing in bankruptcy laws now available in India to represent such cases.
Finding an individual or consumer bankruptcy lawyer shouldn’t be a difficult task. There are many such lawyers practicing all over the country. There are many legal advisory websites where one can get a city/region wise list of bankruptcy lawyers with their experience in the field mentioned. Also one can find a lawyer through referrals, legal directories and Bar Associations. Sole proprietors can file for bankruptcy on their own but other types of businesses are legally bound to hire a lawyer to file for bankruptcy.
While choosing a bankruptcy lawyer for a company or a business entity, there are certain guidelines that should be followed.
The bankruptcy process, and the kind of lawyer one should hire for assistance would vary depending on the financial situation of the business. Bankruptcy can be filed under Chapter 7, Chapter 13, or Chapter 11 of the bankruptcy law.The most common type of bankruptcy is the Chapter 7 bankruptcy, which is also called a liquidation bankruptcy. It applies to both individuals as well as business entities. Under Chapter7, bankruptcy can be filed if your business is no longer in a position to pay back debts. The assets of the business get liquidated, the court distributes them to settle the dues among the creditors of the business and the business ceases to exist.
Chapter 13 and Chapter 11, also called the reorganization bankruptcies, are those in which businesses are not wound up. The business owner has to submit a debt repayment in court and the business can keep on operating. The business might undertake strategic restructuring, like selling off non-performing assets, refinance its debts and infuse fresh funds through new sources of equity or financing. Chapter 11 is only for businesses. Chapter 13 is normally meant for consumers, but sole proprietors can also file under it for reorganising personal and business debt. As there is essentially no differentiation between an individual and his/her sole proprietorship business, one can file for bankruptcy under chapter7 or chapter 13 on his/her own, but it is always advisable to hire a consumer bankruptcy lawyer to better represent the case in court. Both the personal and business debt of the individual will be considered by the court for liquidation or reorganisation.
Now that the financial condition and the goals of the business has been evaluated, the next step would be to hire a bankruptcy lawyer. Generally, lawyers who represent individuals or small businesses, are sole practitioners or are affiliated to small law firms. They have limited number of cases and therefore, are able to give individualized attention to their clients. They provide detailed and comprehensive solution to the problem and various alternatives that can be explored. Bigger law firms, which file hundreds of bankruptcy cases every month, do not give such personalised attention to their clients. They have a standard laid down procedure where in the details of the clients are filled, just like filling a form, and the case is filed. At such firms, which are also called Bankruptcy Mills by some, bulk of the initial work is done by paralegals, and its only in the later stages that the lawyer handling the case actually has a meeting with the client for discussion. These firms are no doubt efficient but they do not have enough time to give personalised attention to their clients. If there is difficulty in reaching a lawyer at a firm, or the firm claims fast bankruptcies or next day bankruptcies, then those are the signals of a Bankruptcy Mill. For small business owners and those who want personalised service, It is always advisable to avoid such firms.
There is no dearth of bankruptcy lawyers in India, but the challenge is to find one that best suits the requirements of the individual and their business. It is often that the best recommendation comes through referrals from friends or other business owners who have had the experience of filing for bankruptcies themselves. State Bar Associations and Legal Directories also come in handy in finding a bankruptcy lawyer. In some cases where the individual income is below certain level, free bankruptcy assistance is available through Legal Aid or Legal Services Corporation, etc.
Once a list of lawyers is compiled, the next step would be to compare them in terms of their experience in business bankruptcies, experience in filings under different chapters, their credentials with various bar associations, whether or not a commercial bankruptcy lawyer is certified by local or state bankruptcy bar association. One should also consider whether a lawyer can offer any alternatives to bankruptcy.
Lastly the cost of filing for bankruptcy should be considered before finalising a lawyer. Cost of filing for bankruptcy varies depending on the type of bankruptcy, location where the case is filed, complexity of the case and the lawyer’s fees. Adding up the court and lawyer’s fees, one should take a decision on which layer to hire.