What To Do If Your Builder Goes Bankrupt Before Handing Over Your Home

Buying a home is often one of the biggest financial decisions for Indian families, but when a real estate developer declares bankruptcy before handing over possession, homebuyers are thrust into a crisis marked by endless delays and uncertainty. Despite having paid a majority of the cost, many are trapped — unable to take possession, sell, or recover their investment.

In such scenarios, understanding your legal and financial options becomes more critical than ever. From asserting your rights under the Insolvency and Bankruptcy Code (IBC) to navigating the role of the Resolution Professional and making practical moves to protect your interests, here's what every stranded homebuyer needs to know when their builder becomes insolvent.

Homebuyers’ Rights Under CIRP

According to legal experts, under Section 5(8)(f) of the Insolvency and Bankruptcy Code (IBC), homebuyers are classified as ‘financial creditors’. As such when a developer undergoes Corporate Insolvency Resolution Process (CIRP), homebuyers are entitled to initiate insolvency proceedings by filing a petition under Section 7 of the IBC.

“However, such a petition must be filed jointly by at least 100 allottees or 10 per cent of the total number of allottees in the same real estate project, whichever is lower,” says Heena Chheda, Partner, Economic Laws Practice.

Homebuyers’ Role In Filing Claims And Joining The CoC

Once a petition is admitted by the National Company Law Tribunal (NCLT), the IRP (Interim Resolution Professional)  issues a public announcement inviting claims from creditors. Homebuyers are required to submit their claims using Form CA, as prescribed under Regulation 8A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, along with supporting documents such as allotment letters, registered sale agreements, payment receipts, and other relevant records.

Once the NCLT admits the petition, an IRP is appointed, and the Corporate Insolvency Resolution Process (CIRP) is initiated against the corporate debtor. “The IRP subsequently constitutes a Committee of Creditors (CoC), which includes homebuyers represented through an Authorised Representative (AR). The AR exercises voting rights on behalf of the homebuyers within the CoC, ensuring that their interests and perspectives are duly considered in decisions relating to the project’s resolution or revival,” informs Chheda.

Chances Of Buyers Getting Possession Of Homes vs Recovering Their Money

Homebuyers are much more likely to get possession of their homes than a refund of their money during real estate insolvency cases under India's IBC. The legal framework, including the ‘Reverse CIRP’ and recent amendments, prioritizes the completion of projects and the delivery of flats, recognizing homebuyers as unique stakeholders.

If the company goes into liquidation, homebuyers fall behind secured creditors (like banks) in the payment hierarchy, leading to very low recovery rates for them.

Immediate Steps for Buyers Post-Insolvency Declaration

So, what immediate actions should buyers take once insolvency is declared legally and financially?

Legal experts say once insolvency is declared, the homebuyer should immediately register as a creditor and file their claim with the IRP/RP within the prescribed deadline. Subsequently, they should form or join an association of affected buyers for collective representation in the CoC.

“It is also advisable to track NCLT and RP updates on resolution plan(s) received by the CoC and be in touch with the Authorised Representative to ensure the updates (such as possession timelines, financial settlements) are satisfactorily voiced in the CoC,” advises Chheda.

Are Homebuyers Treated Differently Based On Payments Made?

Under India's Insolvency and Bankruptcy Code (IBC), the Committee of Creditors (CoC) and any proposed resolution plan must treat all creditors within the same class /homebuyers equitably. Homebuyers are considered a single class of 'financial creditors' and cannot be treated differently based on the percentage of payment they have made to the developer.

“The Supreme Court affirmed this in the case of Vishal Chelani & Ors v. Debashis Nanda, specifically ruling that homebuyers who have secured favourable orders from the Real Estate Regulatory Authority (RERA) cannot be treated differently from other homebuyers,” informs Chheda.

In short, all homebuyers will receive uniform treatment during the insolvency process, regardless of their individual payment status or whether they hold a RERA order.

Due Diligence Tips For Investing In Under-Construction Projects

Keeping the above-mentioned facts in view, therefore, buyers must take the necessary precautions before investing in under-construction projects to minimise their risks.

Legal experts advise prospective homebuyers to carry out thorough legal and financial due diligence before making any investment.

“This includes confirming the project’s RERA registration and carefully reviewing all documents available on the RERA portal, such as title deeds, approvals, disclosures, encumbrances, litigations, payment plan etc,” says Chheda.

Buyers should also evaluate the developer's reputation, their past performance and reliability in delivering completed projects.