This article will generally discuss the insolvency proceeding (previously called “bankruptcy”) proceedings in the Magistrate’s Court. For more information on the various topics – see the links in the body of the article.
An insolvency application is filed by a person who has debts exceeding 150,000 NIS with the Magistrate’s Court. The debtor is called an “individual” in legal terms while those owed money are called “creditors” in legal terms.
The process begins with filing an application for an order to commence proceedings. The application is submitted in a long form requiring extensive information regarding the individual and his family, income, expenses, assets and more. The application is not submitted directly to the court but rather to the Insolvency Officer (will be called “the Officer” in this article) – a government body overseeing insolvency proceedings.
After submitting the application, the Officer can request additional documents and clarifications, and after these are also submitted, the file will also be opened with the court, and an orderly recommendation from the Officer will be given which will recommend, among other things, the monthly payment the individual will pay in the first stage of the proceeding, which can be between a year and a half to two years. For further reading about the monthly payment and its determination – see this article from our firm.
After the Officer’s recommendation is given, an order to commence proceedings will be issued. The date the order is given is important because it “draws the line” regarding debts: debts created up until the date the order was given will be included in the insolvency proceeding, and at the end of the proceeding – if it ends successfully – will be erased. Debts created afterwards will not be included and will not be erased. Therefore, the individual also has a duty not to incur new debts during the proceeding.
The order will stay proceedings against the individual, so creditors cannot take action against him, which will give him breathing room and the ability to live in dignity and subsist without creditor harassment. The order will also appoint a trustee for the proceeding who will investigate the individual and his assets, and ultimately submit an orderly opinion to the court when the time comes to issue an economic recovery order, and of course discharge. In any application submitted in such a proceeding there are at least three parties: the individual, the trustee, the Officer, and sometimes the creditors are also a party.
The individual is required to submit bi-monthly reports, once every two months, detailing his income and expenses. Any delay or lateness in submitting reports may cost the individual an extension of the payment period to be set subsequently, if the judge presiding over the case is strict, and therefore there is great importance to submitting the reports on time and preparing them properly, as well as being careful to deposit the monthly payment on time every month.
The trustee will conduct an investigation of the individual where he will be asked about his assets, income and expenses, his family and his work, and the trustee can demand documents evidencing these assets.
The trustee will submit the investigation results to the court in a report before the hearing whose date was already set in the order to commence proceedings, usually one to two years after the order to commence proceedings was given. As part of the report, the trustee will also recommend the appropriate monthly payment for the individual going forward, in the economic rehabilitation order, and the Officer will also respond to the trustee’s proposal. The individual also has a right of response.
At the hearing regarding the economic rehabilitation order, the individual, Officer and trustee will be present. Sometimes creditors also come to this hearing. This is a critical hearing where the terms of the discharge to be given to the individual will be set – the discharge order erases the debts. These arrangements usually include a monthly payment suited to the individual’s ability and liquidation of assets owned by the individual.
After the hearing, the individual will continue paying in accordance with the order, and as he meets the payments, he will be given a discharge (at the end of the period set in the order). The discharge order erases the debts that were included in the proceeding, allowing the individual to embark on a new financial path, open a new chapter in life without debts.