Haircuts – Haircut is a term applicable when a debtor faces difficulty in repaying his debt. In the case of bankruptcy proceeding, it means a proportional reduction in the debt that will be paid to creditors, based on an evaluation of the total debt owed and the total assets of the debtor. For example, imagine that a corporate defaulter during a bankruptcy proceeding under the IBC proves that he does not have the capacity to repay the debt in full to banks. The creditors or banks may be ready to take losses by agreeing to get only a given proportion of their dues (money to be given by the debtor). Here, if the bank agrees to collect 60% of the debt from the corporate borrower, it means a 40% haircut.
