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Navigating Individual Insolvency Under the Insolvency and Bankruptcy Code (IBC)

Shruti Goel
October 31, 2023
Individual Insolvency


Individual insolvency, commonly known as personal bankruptcy, is a legal framework that provides individuals with a structured process to resolve their financial distress and unmanageable debts and/or guaranteed financial obligations. It offers a chance for such individuals to make a fresh financial start while ensuring a fair distribution of assets among creditors. In India, the Insolvency and Bankruptcy Code (IBC) provides the legal framework for dealing with individual insolvency. In this blog, we will explore the concept of individual insolvency under the IBC, the procedures involved, and its significance. 

Understanding Individual Insolvency Under the IBC 

The IBC, enacted in 2016, is primarily known for its impact on corporate insolvency. However, it also contains provisions for addressing individual insolvency and insolvency of firms, thus making it a comprehensive legal framework for insolvency matters. Under the IBC, an individual can initiate the insolvency process when they are unable to meet their financial obligations, or, any financier holding their guarantees for corporate borrowers may initiate such processes. 

Key Provisions of Individual Insolvency Under IBC: 

1. Who can Apply: An individual who owes a debt to any person or creditor can apply for individual insolvency under the IBC. 

2. Minimum Threshold: To initiate the process, the debt owed by the individual must exceed a minimum threshold. As of my last knowledge update in January 2022, this threshold was set at Rs. 1,000.

3. Adjudicating Authority: The application for individual insolvency is made to the Debt Recovery Tribunal (DRT) in India. The DRT is responsible for adjudicating the insolvency resolution process. However, where the matter involves a corporate guarantee for debts owed by a corporate guarantor, the NCLT is the appropriate forum. 

4. Timeframe: The IBC mandates a specific timeframe for the resolution process. If the process is not completed within 180 days, it may be extended up to 90 days in certain justified situations.

5. Bankruptcy Order: If the DRT finds that the debtor is insolvent, it can pass a bankruptcy order, which is a declaration of bankruptcy for the individual. 

6. Appointment of Resolution Professional: Similar to corporate insolvency, a resolution professional is appointed to manage the debtor's assets and liabilities during the insolvency resolution process. 

7. Moratorium: Once the insolvency process is initiated, a moratorium is imposed on any legal proceedings against the debtor. This provides the debtor with protection from creditor actions during the resolution process. 

Steps in the Individual Insolvency Process 

The process of individual insolvency under the IBC typically involves the following steps: 

1. Application: The debtor files an application for individual insolvency with the DRT/ NCLT.

2. Review: The DRT/ NCLT reviews the application to determine whether the debtor is eligible for insolvency. 

3. Moratorium: If the application is accepted, a moratorium is imposed, protecting the debtor from creditor actions. 

4. Assessment: The resolution professional assesses the debtor's financial situation, assets, and liabilities. 

5. Resolution Plan: The resolution professional works with the individual and, creditors to create a resolution plan that may involve restructuring the debt or liquidating the debtor's assets.

6. Approval: The resolution plan is presented to the DRT/ NCLT for approval. If accepted, it is binding on all parties. 

7. Bankruptcy Order: If no resolution plan is agreed upon or if the plan is not approved, the DRT/ NCLT may pass a bankruptcy order, leading to the liquidation of the debtor's assets to pay off the creditors. 

Significance of Individual Insolvency under IBC 

1. Legal Framework: The IBC provides a comprehensive legal framework for dealing with individual insolvency, ensuring a fair and structured resolution process. 

2. Fresh Start: Individual insolvency offers a chance for individuals to make a fresh financial start and rebuild their lives without the burden of unmanageable debt. 

3. Creditor Protection: It also provides protection to creditors by ensuring that their rights are safeguarded during the resolution process. 

4. Time-Bound Process: The IBC mandates a time-bound resolution process, ensuring efficiency and reducing delays in resolving individual insolvency cases. 

5. Moratorium: The moratorium provided under the IBC offers temporary relief to debtors, allowing them to focus on the resolution process without the constant threat of legal action from creditors. 

Challenges and Concerns 

While the IBC has introduced a structured framework for individual insolvency, there are also  challenges and concerns associated with its implementation: 

1. Lack of Awareness: Many individuals are not aware of the provisions of individual insolvency under the IBC, which can lead to delayed or unaddressed insolvency issues. 

2. Threshold Limit: The minimum threshold limit for initiating individual insolvency can be a barrier for individuals with smaller debts. 

3. Limited Resources: Resolution professionals and infrastructure for individual insolvency cases may be limited in some regions, leading to delays in the process. 

4. Complexity: The legal and procedural complexities of the IBC can make it challenging for individuals to navigate the insolvency process without professional assistance. 


Individual insolvency under the IBC is a crucial legal framework that provides relief and a fresh start for individuals burdened by unmanageable debt. It offers a structured and time-bound resolution process,  ensuring fairness for both debtors and creditors. However, there are challenges in its implementation,  including a lack of awareness and complexities in the legal procedures. As the framework evolves and awareness grows, individual insolvency under the IBC can become a more effective tool for addressing financial distress among individuals in India. It is essential for individuals to seek professional advice when considering the individual insolvency process to ensure that their rights and interests are protected. 

About Ancoraa  

Ancoraa Resolution Pvt. Ltd., a company promoted and managed by experienced Insolvency professionals with a  rich experience in corporate banking, debt resolution and restructuring.  

At Ancoraa Resolution, we are a team of IPs, CAs, CS, Cost Accountants, and Lawyers with deep knowledge and practical experience in the insolvency space. The professionals on our team have extensive experience in leading,  managing, and successfully running insolvency processes across industries.

Ancoraa’s flagship technology, the Rezolution Engine® – is India’s first and only ‘Resolution-as-a Service’  platform providing a collaborative digital avenue to run the entire resolution process in compliance with the  Insolvency and Bankruptcy Code of India. Whether you are a supplier, a homebuyer, a bank or a personal guarantor, Rezolution Engine® enables anyone to initiate an insolvency application and allows all the participants to get a single point of view to the insolvency and bankruptcy proceedings, while maintaining compliance and governance throughout the process.

About the author
Shruti Goel

Shruti is the operations specialist at Ancoraa. She is responsible for IP engagement, company research and operational excellence initiatives. She is passionate about and writes on topics of Insolvency Technology and administers Ancoraa’s flagship technology platform ‘Rezolution Engine’.

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