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Corporate and Economic Laws · Insolvency and Bankruptcy Code, 2016

Insolvency of Individuals and Partnership Firms under IBC

Updated 11 October 2026 · Fact-checked

Part III of the IBC deals with insolvency of individuals and partnership firms. It has three routes: fresh start for very small debtors, insolvency resolution through a repayment plan, and bankruptcy. The Debt Recovery Tribunal is the Adjudicating Authority. To solve questions, check who the debtor is, the default amount, the eligibility limits, then the route and the authority.

Understand Insolvency of Individuals and Partnership Firms

The IBC treats companies and LLPs separately from individuals and firms. Part II covers corporate persons. Part III covers individuals and partnership firms. Section 2 of the Code brings in personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals.

Part III applies where the amount of the default is not less than ₹1,000 (Section 78). The Central Government may, by notification, specify a higher minimum default, but not more than ₹1 lakh. Do not mix this up with the corporate default threshold, which is a different rule.

There are three routes. Fresh start is for a debtor who is unable to pay and meets very low limits on income, assets and debt. It allows discharge of his qualifying debts. Insolvency resolution lets the debtor, with a resolution professional, put a repayment plan to the committee of creditors to restructure debts or affairs. Bankruptcy follows when a bankruptcy order is passed. A trustee, who is an insolvency professional, then manages the estate of the bankrupt.

The Adjudicating Authority for individuals and firms is the Debt Recovery Tribunal (DRT) with territorial jurisdiction over the place where the debtor actually and voluntarily resides, carries on business or personally works for gain (Section 179). This is subject to Section 60. For corporate persons and their personal guarantors, Section 60 makes the NCLT the Adjudicating Authority, at the place of the registered office of the corporate person. If a corporate debtor's CIRP or liquidation is pending before an NCLT, the application about its personal guarantor must be filed before that NCLT.

The DRT can hear any suit or proceeding by or against the individual debtor, any claim by or against him, and any question of priorities or of law or fact arising out of the insolvency. In computing limitation for a suit or application in the debtor's name for which a moratorium has been ordered, the moratorium period is excluded. Insolvency professionals act in these processes and must follow the code of conduct in Section 208, including reasonable care and diligence.

Key rules to remember

Application of Part III (Section 78)
Default ≥ ₹1,000; Central Government may notify a higher minimum, not more than ₹1,00,000
Applies to fresh start, insolvency and bankruptcy of individuals and partnership firms.
Fresh start eligibility: money limits (Section 80(2))
Gross annual income ≤ ₹60,000; total assets ≤ ₹20,000; qualifying debts ≤ ₹35,000
All limits are 'does not exceed'. All conditions must be met together.
Fresh start eligibility: other conditions (Section 80(2))
Not an undischarged bankrupt; owns no dwelling unit (even if encumbered); no fresh start, insolvency resolution or bankruptcy process subsisting; no fresh start order in the preceding 12 months
Application may be made personally or through a resolution professional.
Qualifying debt (Section 79(19))
Liquidated sum due, excluding (a) excluded debt, (b) debt to the extent secured, (c) debt incurred within 3 months before the fresh start application
Excluded debt: court or tribunal fines, damages for negligence, nuisance or breach of obligation, maintenance, student loans, and other prescribed debts.
Immediate family (Section 79(17))
Spouse + dependent children + dependent parents
Used in the definitions of associate and excluded assets.
Excluded assets (Section 79(14))
Unencumbered: tools, books, vehicles and equipment needed for work; basic furniture and household items; prescribed religious ornaments; life insurance or pension plan; single dwelling unit of prescribed value
The word unencumbered matters for each item.
Adjudicating Authority
Individuals and firms: DRT (Section 179). Corporate persons and personal guarantors of corporate debtors: NCLT (Section 60)
Section 179 is subject to Section 60.

How to solve Insolvency of Individuals and Partnership Firms questions

Use this order for any question on individual or firm insolvency, whether MCQ or case-based.

  1. 1Identify the debtor: individual, partnership or proprietorship firm, or personal guarantor to a corporate debtor. This decides the authority.
  2. 2Check that Part III applies: default of at least ₹1,000, or the higher notified amount (maximum ₹1 lakh).
  3. 3Decide the route: fresh start, insolvency resolution with a repayment plan, or bankruptcy.
  4. 4For fresh start, test every condition in Section 80(2) one by one: income, assets, qualifying debts, bankruptcy status, dwelling unit, subsisting process, earlier order.
  5. 5Work out qualifying debt: remove excluded debt, the secured portion, and debt incurred in the last 3 months before the application.
  6. 6Name the Adjudicating Authority: DRT of the debtor's place of residence, business or work. Use NCLT if the person is a personal guarantor linked to a corporate debtor's process.
  7. 7Mention the role of the resolution professional or bankruptcy trustee, who is an insolvency professional.
  8. 8State the conclusion in one clear line: eligible or not, and why.

Quickest way: Three-check shortcut for fresh start questions

When to use it: Use for MCQs and case scenarios that give you figures for income, assets and debt.

  1. Remember the numbers 60, 20, 35 (in thousands): income, assets, debts.
  2. Compare each figure. One figure above its limit means not eligible.
  3. Scan for disqualifiers: owns a dwelling unit, undischarged bankrupt, process already running, fresh start order within 12 months.
  4. Cut the debt: drop secured portions, fines, maintenance, student loans and debts from the last 3 months, then compare with ₹35,000.
  5. Pick the forum: DRT for individuals and firms, NCLT for personal guarantors of corporate debtors.

Common mistakes in Insolvency of Individuals and Partnership Firms

  • Saying the NCLT hears all individual insolvency cases.

    Students link the IBC with the NCLT because of corporate insolvency.

    Fix: Remember that Section 179 gives individuals and firms to the DRT. NCLT handles corporate persons and personal guarantors of corporate debtors under Section 60.

  • Treating limits as 'at least' instead of 'not exceeding'.

    The ₹1,000 default rule uses 'not less than', and students carry that wording over.

    Fix: For fresh start, income, assets and qualifying debts must not exceed ₹60,000, ₹20,000 and ₹35,000. The ₹1,000 default is a minimum.

  • Allowing fresh start to a debtor who owns an encumbered house.

    Students assume a mortgage removes the house from the test.

    Fix: Section 80(2)(e) bars anyone owning a dwelling unit, whether encumbered or not.

  • Counting the whole debt as qualifying debt.

    Students ignore the exclusions in the definition.

    Fix: Deduct excluded debts, the secured part, and debts incurred within 3 months before the application, then test against ₹35,000.

  • Confusing the ₹1 lakh figure with the default threshold.

    The proviso to Section 78 sets a ceiling on what the Government may notify.

    Fix: The base minimum default is ₹1,000. The Government may raise it by notification, but not above ₹1 lakh.

  • Forgetting that a partnership firm is covered.

    The topic title is read as 'individual' only.

    Fix: Part III covers partnership firms too. Section 2 also lists proprietorship firms and personal guarantors.

Worked examples

Example 1

Ramesh, a delivery worker in Pune, has gross annual income of ₹55,000 and assets worth ₹18,000. He owes ₹30,000 to a moneylender (unsecured, incurred a year ago) and ₹3,000 for a court fine. He owns no house and has no process pending against him. Can he apply for a fresh start?

Show the solution
  1. Income ₹55,000 does not exceed ₹60,000. Condition met.
  2. Assets ₹18,000 do not exceed ₹20,000. Condition met.
  3. Court fine is an excluded debt, so it is not a qualifying debt. Qualifying debt is ₹30,000.
  4. ₹30,000 does not exceed ₹35,000. Condition met.
  5. No dwelling unit, no subsisting process. Assume he is not an undischarged bankrupt and had no fresh start order in the preceding 12 months, as nothing says otherwise.
  6. The DRT with jurisdiction over Pune, where he resides or works, is the Adjudicating Authority.

Answer: Yes. Ramesh meets all the conditions of Section 80(2) and may apply, personally or through a resolution professional, to the DRT having jurisdiction over his place of residence or work.

Example 2

Meena has gross annual income of ₹50,000, assets of ₹15,000 and qualifying debts of ₹25,000. She owns a small flat that is fully mortgaged to a bank. Is she eligible for a fresh start? Which authority would hear her case if she were eligible?

Show the solution
  1. Income ₹50,000 is within ₹60,000.
  2. Assets ₹15,000 are within ₹20,000.
  3. Qualifying debts ₹25,000 are within ₹35,000.
  4. Section 80(2)(e) requires that the debtor does not own a dwelling unit, irrespective of whether it is encumbered.
  5. Meena owns a flat, so the mortgage does not help her. She fails this condition.
  6. Had she been eligible, the DRT with territorial jurisdiction over her residence, business or work would hear the case under Section 179.

Answer: No. She meets the money limits but owns a dwelling unit, which disqualifies her even though it is encumbered. The forum, if she were eligible, would be the DRT.

Exam tips

  • Learn the three fresh start limits and the seven conditions as a list. MCQs often change one figure or one condition.
  • Always name the forum. Distinguish DRT for individuals and firms from NCLT for corporate persons and their personal guarantors.
  • In case scenarios, strip out excluded debt, secured debt and debts of the last 3 months before testing the ₹35,000 limit.
  • Use exact words such as 'not exceed', 'not less than' and 'irrespective of whether encumbered' in written answers.
  • Link the topic with the corporate insolvency chapters to compare thresholds, authorities and processes.

Practice questions from Insolvency and Bankruptcy Code, 2016

Insolvency of Individuals and Partnership Firms in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Insolvency of Individuals and Partnership Firms: frequently asked questions

Who decides insolvency cases of individuals under the IBC?

The Debt Recovery Tribunal is the Adjudicating Authority for individuals and firms under Section 179. It is the DRT with jurisdiction over the place where the debtor resides, carries on business or works for gain. This is subject to Section 60, which governs corporate persons and their personal guarantors.

What is the fresh start process?

It is a route for a debtor who cannot pay his debts and who has very low income, assets and debts. If the conditions of Section 80 are met, he may apply for discharge of his qualifying debts. The application can be made personally or through a resolution professional.

Does a partnership firm come under individual insolvency?

Yes. Part III applies to individuals and partnership firms, and Section 2 also lists proprietorship firms. The DRT is the Adjudicating Authority for insolvency matters of individuals and firms.

Which tribunal hears the insolvency of a personal guarantor?

For personal guarantors to corporate debtors, Section 60 makes the NCLT the Adjudicating Authority. If the corporate debtor's resolution or liquidation is pending before an NCLT, the application about its personal guarantor must be filed before that same NCLT.

What is the minimum default for Part III to apply?

Part III applies where the default is not less than ₹1,000. The Central Government may notify a higher minimum, but it cannot be more than ₹1 lakh.