Is It Possible to Get Relief from Debt by Declaring Bankruptcy in Bangladesh?
In twenty-six years since the Bankruptcy Act 1997 took effect, Bangladesh has seen only 533 to 638 bankruptcy petitions filed across the entire country. Between 2016 and 2020, courts disposed of exactly two cases out of eleven filed. The statute provides a pathway to debt discharge, but the near-total dormancy of this system forces a harder question: can a debtor in Bangladesh actually obtain meaningful relief through bankruptcy? The statutory framework, case data, the unresolved conflict with Artha Rin Adalat proceedings, and the proposed Insolvency and Bankruptcy Ordinance 2025 all reveal an answer far more complicated than the statute suggests.
The Short Answer: Statutory Relief Exists but Remains Practically Elusive
Yes, the Bankruptcy Act 1997 ↗ provides for adjudication of bankruptcy and eventual discharge. A debtor whose debts exceed Tk. 20,000 can file a voluntary petition under Section 13. Creditors holding at least Tk. 5,00,000 in unsecured debt can file after a debtor commits an act of bankruptcy under Section 9, most commonly by failing to satisfy a statutory demand within 90 days.
Upon adjudication, Section 31 vests all of the bankrupt's property in the Official Receiver automatically. The court imposes a moratorium on creditor action. Section 47 then provides the mechanism for discharge, which can be absolute or conditional depending on the bankrupt's conduct and the degree of creditor recovery.
Discharge is extraordinarily rare in practice. The Apurna-Zahid Fashion Limited case, filed in August 2000, was still pending as of 2021 — over twenty years without resolution. Sections 44 and 48 impose a 50% recovery threshold as one ground for refusing discharge, meaning the debtors most desperately in need of a fresh start are the least likely to obtain one.
The system also operates on a critical structural divide. The Bankruptcy Act 1997 governs individuals and partnerships only. Corporate insolvency falls under the Companies Act 1994 winding-up provisions — an entirely separate regime with different courts, different procedures, and different outcomes.
Statutory Framework Under the Bankruptcy Act 1997
Section 9 defines the acts of bankruptcy that trigger creditor petitions: absconding to avoid debts, making a fraudulent transfer of property, giving written notice of inability to pay, or suffering execution against property. The most common trigger is a debtor's failure to comply with a creditor's statutory demand for Tk. 5,00,000 or more within 90 days.
Section 32 exempts certain property from the bankruptcy estate: tools of trade, household necessities, and a homestead of up to 2,500 square feet in urban areas, with the total exemption capped at Tk. 3,00,000. This cap has not been revised since 1997, and its real value has eroded dramatically with inflation. Practitioners advising debtors should read this alongside Bangladesh's broader immovable property framework — the intersection of property transfer rules and insolvency exemptions raises important questions about how heba and usufruct interests survive adjudication.
Section 51 carves out non-dischargeable debts: government debts, debts arising from fraud to which the bankrupt was a party, and maintenance orders. Section 94 imposes severe restrictions on an undischarged bankrupt — no bank loans, disqualification from Parliament, the judiciary, and public office — persisting indefinitely until the court grants discharge.
Section 60 provides a claw-back period of 15 years. Courts can reverse any transfers made within this window. The United Kingdom applies a two-year look-back; India's IBC 2016 also uses two years. Bangladesh's 15-year provision exposes virtually every significant transaction a debtor has ever made and is a major deterrent to voluntary filing.
Section 43 offers an alternative through a composition or scheme of arrangement, requiring approval by creditors holding two-thirds of the total debt value plus court sanction. A successful composition annuls the adjudication order entirely. This in-court mechanism is essentially structured ADR — for comparative context on how common-law jurisdictions are modernising out-of-court settlement frameworks, see the legislative review of ADR in common-law countries.
Why the System Barely Functions: Practical Barriers to Relief
The numbers tell the story. Only 533 to 638 total bankruptcy petitions were filed in 26 years. Between 2016 and 2020, eleven cases were filed and two were disposed of. Approximately Tk. 2,600 crore remains stuck in pending cases. As of June 2023, 172 cases were still under trial, with banks claiming Tk. 4.24 billion.
Banks avoid the system entirely. Bangladesh Bank spokesperson Md Mezbaul Haque stated plainly that banks do not consider the bankruptcy courts a viable option for recovering default loans. Barrister Khan Mohammad Shamim Aziz put it more bluntly: banks always lose in bankruptcy suits because they cannot recover default loans through that route. The institutional preference for the Artha Rin Adalat, despite its own dysfunction, reflects a rational creditor calculation: bilateral enforcement, even imperfect, beats a collective proceeding that has never reliably produced outcomes.
From the debtor's side, the incentives are equally discouraging. The 50% recovery threshold under Sections 44 and 48 means a deeply insolvent debtor faces likely denial of discharge. A debtor who cannot repay half of what is owed is precisely the person the system should help most — yet the statute treats low recovery as grounds for refusal rather than grounds for relief. The eroded Tk. 3,00,000 exemption cap and the 15-year claw-back under Section 60 compound the deterrence. Bangladesh's non-performing loan ratio reached 36% by September 2025, with Tk. 6.44 lakh crore in distressed bank debt and total distressed assets approaching Tk. 11 lakh crore by early 2026 — roughly 60% of banking sector loans. The bankruptcy system resolves virtually none of it.
The Artha Rin Adalat Conflict and the Strategic Defaulter Loophole
Bangladesh operates a dual-track system that creates a dangerous gap. The Artha Rin Adalat Act 2003 governs loan recovery by banks through specialized Money Loan Courts. No statutory coordination mechanism exists between it and the Bankruptcy Act 1997.
Banks overwhelmingly prefer the Artha Rin Adalat. Section 12 of that Act permits out-of-court enforcement against secured property. Section 34 authorizes civil imprisonment for up to six months. Section 42 requires a 75% appeal deposit, discouraging challenges. These are aggressive creditor tools that the Bankruptcy Act simply cannot match.
A critical loophole exists: if a debtor files a bankruptcy petition while Artha Rin Adalat proceedings are pending, the Artha Rin Adalat suit automatically becomes invalid. Courts have not authoritatively resolved which regime prevails when the two collide. The High Court Division in Shamshad Asif v. Additional District Judge, HCD, 52 DLR 138 (1999) confirmed that res judicata does not bar a bankruptcy petition simply because an Artha Rin Adalat decree already exists against the same debtor — the two regimes serve different purposes and neither forecloses the other. This gap is exploitable by sophisticated debtors as a tactical device to derail bank recovery proceedings.
The Artha Rin framework has its own enforcement vulnerabilities. In Dr. Kazi Sirazul Islam v. Artha Rin Adalat No. 1, Dhaka, HCD, 2022(1) LNJ 263 (2023), the court rejected a mortgagor's argument that a bank had "failed" to sell property at auction when the mortgagor had itself obtained a stay and frustrated the auction. Obstruction through a meritless writ petition cannot satisfy the statutory failure requirement. Banks may restart enforcement once such stays are vacated.
The practical result is devastating. Large strategic defaulters, responsible for much of the NPL crisis, face neither effective recovery proceedings through the Artha Rin Adalat nor meaningful insolvency consequences through the Bankruptcy Act. They occupy a zone of impunity between two broken systems.
Corporate Insolvency: The Companies Act 1994 Winding-Up Path
The Bankruptcy Act 1997 does not apply to corporations. Corporate insolvency is governed exclusively by Part IX of the Companies Act 1994 (Sections 234–308), providing for winding-up proceedings before the High Court Division's Companies Bench. Only one corporate winding-up on insolvency grounds has been declared in the last decade.
Bangladesh has no equivalent to India's Corporate Insolvency Resolution Process with its time-bound 180-day resolution period, no Chapter 11 reorganization framework, and no debtor-in-possession financing mechanism. Section 46 of the Bankruptcy Act theoretically provides for reorganization of non-individual debtors, but has been described as a dead letter — it has never been successfully used. Bangladesh has also not adopted the UNCITRAL Model Law on Cross-Border Insolvency ↗, leaving foreign creditors without any statutory participation framework and assets held abroad beyond the reach of domestic proceedings.
The Proposed Insolvency and Bankruptcy Ordinance 2025: Reform on the Horizon
A draft Insolvency and Bankruptcy Ordinance 2025 has been prepared under the interim government with involvement from BAIRA (Bangladesh Association of Insolvency Restructuring and Administration). As of October 2026, it has not been enacted. The Chambers Banking Regulation 2026 guide references a proposed "Insolvency and Bankruptcy Act 2026," suggesting possible enactment under a revised title.
The draft Ordinance's primary objective is going-concern rescue, moving away from the current liquidation-first approach. Proposals include a dedicated Insolvency Tribunal, accelerated reorganization procedures, cross-border insolvency provisions, and a regulatory body analogous to India's IBBI. The reform agenda draws directly on the World Bank's principles for effective insolvency systems ↗ — predictability, creditor value maximization, and going-concern preservation.
For practitioners familiar with how England's Arbitration Act 2025 modernised a similarly stagnant statutory regime, the parallel reform experience in English commercial dispute resolution offers a useful comparative lens on what legislative modernisation can and cannot achieve without deeper institutional change.
Significant implementation uncertainties remain. Bangladesh has no trained cadre of insolvency professionals analogous to the registered insolvency practitioners required under the UK or India's IBBI-regulated framework. Political transition risks cloud the legislative timeline, and the banking sector may resist a framework that forces collective proceedings over bilateral recovery tools it has spent years developing under the Artha Rin Adalat. Reform on paper is insufficient without the institutional infrastructure to administer it.