What To Do If The Builder Files Bankruptcy?

What should you do when a builder files for bankruptcy? The prevailing consensus is to increase in any type of investment, across any asset class, including real estate. In the real estate industry, strong market research and due diligence are largely responsible for the anticipated growth and appreciation. But there can be a bad time when you have to take investment risks. Investing in a property that is still under construction and the builder filing for bankruptcy is one such danger. The fact that the buyers would still have to make monthly payments on the mortgage for the property makes this difficult for them. Thus, what steps should they take in the event that a constructor declares bankruptcy? Here, let’s find out.

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What does bankruptcy mean?

Legal recognition of a company’s or promoter’s inability to pay debt is achieved by bankruptcy. A builder in the real estate industry may go bankrupt because to improper financial management, insufficient capital, or an abrupt downturn in the real estate market.


What choices does a homeowner have in the event that the project or business in which they invested goes bankrupt?

A builder may stop working on the project or postpone handover if he files for bankruptcy. Even though buyers have trouble with any choice, a delayed handover is still preferable to the project being abandoned.

In this situation, the buyer ought to:

  • To begin with, find out if the developer has declared bankruptcy.
  • Go over the selling contract and property agreement to see whether there are any provisions regarding bankruptcy or developer delays in handover. You can speak with the developer in this situation and attempt to work out a compromise that will cause less financial harm.
  • If the developer is unwilling to cooperate, you should seek legal advice from an expert.
  • Consult the state’s Real Estate Regulatory Authority (RERA) for assistance.
  • Use the Consumer Protection Act to file a complaint with the consumer court.
  • Use the 2020-implemented Insolvency and Bankruptcy Code (IBC) for assistance.
  • Complete the Insolvency and Bankruptcy Board of India’s Form F (IBBI).


Bankruptcy and Insolvency Code (IBC) 2020

This is a revised version of the Insolvency and Bankruptcy Code (IBC) 2016, which mandates a timeline for the resolution of insolvencies. Under this rule, homeowners can initiate legal action against the developer; but, in order to bring their case before a judge, they must fulfill specific requirements. According to the IBC, about 10% of allottees should band together to file for bankruptcy against the promoter.



Although a promoter’s bankruptcy declaration can be unsettling for buyers, in the modern day this risk has been reduced primarily due to the state RERA’s insistence on updating quarterly progress reports (QPRs) and its enforcement of actions such as freezing bank accounts, halting project work, etc., until the promoter complies with RERA rulings. In certain situations, the regulations permit project promoters to withdraw from the project.


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