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What happens if a builder goes bankrupt while constructing a project?

Curious about RERA Act

What happens if a builder goes bankrupt while constructing a project?

If a builder goes bankrupt while constructing a project, it can have significant implications for the completion of the project and the interests of home buyers. Here's what typically happens in such a scenario:

1. Insolvency Proceedings: When a builder goes bankrupt, insolvency proceedings may be initiated against the builder's company. The proceedings involve the appointment of an insolvency professional who takes charge of the builder's assets, liabilities, and financial affairs.

2. Committee of Creditors: A committee of creditors, including home buyers, is formed to represent the interests of those who have financial claims against the builder. This committee assesses the financial situation, proposes a resolution plan, and makes decisions regarding the future course of action.

3. Completion of the Project: Depending on the financial viability of the project and the available resources, the committee of creditors may explore options to complete the project. This could involve engaging with other developers or investors who can take over the project and ensure its completion.

4. Legal Recourse: Home buyers who are affected by the builder's bankruptcy can initiate legal proceedings to protect their interests. This may include filing a claim in the insolvency proceedings, seeking refunds or compensation, or pursuing legal remedies based on the terms of the agreement or applicable laws.

5. Involvement of Regulatory Authorities: The respective state's Real Estate Regulatory Authority (RERA) may intervene to protect the rights of home buyers and monitor the progress of the project. RERA may facilitate discussions between the stakeholders, monitor the use of funds, or take other necessary steps to safeguard the interests of home buyers.

It's important to note that the outcome for home buyers in the event of a builder's bankruptcy can vary depending on the specific circumstances, including the financial condition of the builder, the stage of the project, the involvement of regulatory authorities, and the legal proceedings. Seeking legal advice and staying informed about the developments in the insolvency process are crucial for protecting the rights and interests of home buyers.

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