If you are struggling with a loan of up to Rs 60,000 and can't repay it, you may soon qualify for debt waiver. 

The government's Insolvency Law Committee (ILC), set up to review the implementation of Insolvency and Bankruptcy Code (IBC), is likely to propose a new debt relief scheme under the personal bankruptcy law framework for individuals in low-income category. The recommendations in this regard are likely to be presented to the new government after the parliamentary elections are over.

So far only corporate debtors can face bankruptcy proceedings. The government is yet to operationalise part 3 of the IBC, which deals with insolvency resolution and bankruptcy for individuals and partnership firms.

The government recently re-constituted the 14-member ILC headed by MCA secretary Injeti Srinivas and tasked it with studying the insolvency resolution and bankruptcy framework for individuals and partnership firms and making recommendations for its implementation.

“We have discussed it. After the proposal is taken through the committee process, technology will be developed for implementing the scheme. The relief would be provided to the applicant literally on a computer-based system,” a senior government official said. 

“The most important thing in personal insolvency is giving individuals such as farmers and artisans a fresh start. If banks can take haircuts worth Rs 1 lakh crore on account of 10 corporates, the individuals living in abject poverty should also be given a chance to have a fresh start. It's basically like NYAY scheme,” the official said.

Farmers, artisans and homebuyers among other individuals are likely to get covered under the proposed best relief scheme. "Loans taken by farmers and artisans are essentially small-ticket. The maximum limit for loan waiver is being kept at Rs 60,000 per individual. If your outstanding loan amount is more than this and income above a certain threshold, say Rs 50,000-60,000 per annum, your application will not be considered for debt relief,” the official said, adding that students have been kept out of it. 

The proposed law will cover only organised loan market and will not be applicable to non-formal sources of credit such as moneylenders. The government plans to allow graduates to become bankruptcy counsellors to deal with such small loans. However, if a person is not eligible for a loan waiver, he or she will be able to file a bankruptcy petition seeking to be declared bankrupt. Lenders, too, can initiate bankruptcy proceedings against individuals. Currently, there is no bankruptcy law for individuals. 

The government plans to bring rules for individuals to be declared bankrupt. “Out of a total of about Rs 80 lakh crore disbursed from the banking system, loans given to individuals are to the tune of 19 lakh crore. This includes farm loans, car loans, personal and credit card among others,” the official said. 

But before the proposed bankruptcy provisions are introduced, debt recovery tribunals (DRTs) will need to be strengthened, experts said. There are 33 DRTs in the country dealing with about one lakh cases. While the bankruptcy and insolvency cases related to companies are dealt with by National Company Law Tribunals (NCLTs), DRTs deal with the cases pertaining to individuals or non-corporate businesses.

BIGGER UMBRELLA

• The proposed law will cover only organised loan market and will not be applicable to non-formal sources of credit such as moneylenders  
• Farmers, artisans and homebuyers among other individuals are likely to get covered under the proposed best relief scheme  
• The government plans to allow graduates to become bankruptcy counsellors to deal with such small loans  
• If a person is not eligible for a loan waiver, he or she will be able to file a bankruptcy petition seeking to be declared bankrupt