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Can You Be Arrested For Not Paying A Loan?

 
  By : , Noida- 63, India       27.11.2017         Phone:9205995294          Mail Now
 

If Vijay Mallya's case is anything to go by, we would all be living without fear, on having defaulted on a loan from the bank. But alas, common people like you and me may not be so lucky!

So whenever we reach a situation where we are unable to pay an instalment of the home loan or auto loan or maybe even the micro-loans that have become fashionable nowadays - the question that looms before us is - will I be sent to jail for my loan default?

Frankly, the simple answer is most probably not.

But there are a few factors which you need to understand:

  • A loan default can be considered as a crime under Section 420 of the Indian Penal Code (IPC).

  • The Bank can file a case against you for cheating if you intentionally refuse to pay back the loan amount and are considered as a wilful defaulter.

  • If a case is filed and you are convicted by the Court, you can face a jail term which can extend to a



    period of 7 years.

  • But this is not the usual practice in default cases. The truth is that Banks do not like to file cases of recovery in the Court as they have to bear additional charges for the case as well - which can become a burden even for the bank.

So what can you actually expect the bank to do in case of default in loan repayment?

  • Debt Rescheduling: The bank can opt to give you an option of a lower EMI for a longer period so that you are able to repay the amount.

  • Deferring the Payment: In case of sudden situations like loss of a job or some unforeseen expenses, the bank can also give you an option to give you a brief relaxation period of a particular time frame and recover the debt on a later date.

  • Loan Restructuring: Mostly used in cases of home loans, the bank can also grant you an extension of up to 1 year for repayment of the loan.

  • Loan Conversion: The bank can also give you an option of converting your unsecured loan into a secured loan, which will significantly reduce your EMI.

  • One Time Settlement: In a scenario where you are unable to pay regular EMIs, you can request the bank to accept a lump sum capital amount and to settle the loan.

  • These are the situations where maintaining cordial relations with the bank employees comes in useful!

However, if you are absolutely unable to repay the loan amount, the bank will be forced to take the following steps against you:

  •  The bank can initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act. If your account is classified as a non-performing asset (NPA), i.e., repayment is overdue by 90 days, the bank will have to first issue a 60-day notice to you.

  • If you are unable to repay the amount within this period, the bank has the right to proceed with the sale of assets.

  • To proceed with the sale of assets, the bank will have to serve a 30-day public notice with details of the property.

  • The bank also has to issue a notice specifying the fair value of the property.

  • You can raise objections to the repossession or valuation notice to which, the bank has to respond within 7 days after which the bank has the right to sell off the property (only that which is shown as the security against the loan amount).

In case of default on your part, the bank will surely not be too polite with you. But that does not mean that they can send hooligans to your home as recovery agents to coerce you to pay. The RBI has given specific orders against such behavior by banks.

 But let's try to be a little more responsible and not create a situation for ourselves where the prospect of going to jail haunts us!



TAGS: unable to pay loan emi,   loan defaulter punishment,   failing to repay the loan,   legal action,   ,  




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