In this article we will discuss determining the monthly payment in insolvency proceedings, which is set twice during the proceedings: first when the order to commence proceedings is issued, and second when the economic recovery plan is set.
The monthly payment should be based on several criteria. It should allow the person paying it, called the “individual” in legal terms, to live in dignity and not be left without the ability to eat and support himself, while on the other hand – it should reflect the person’s financial ability to pay so that his creditors receive the highest possible compensation for their debts.
In the initial stage, the order is set by the Insolvency Officer – a government body that oversees insolvency proceedings, and to which the initial application to commence proceedings is submitted. As part of reviewing the application, the Officer will submit an orderly recommendation to the court in which he will set the amount deemed appropriate for the monthly payment as it appears to the Officer.
When setting the payment, both when issuing the order to commence proceedings and when setting the economic recovery plan, both the individual’s income and expenses will be taken into account. Therefore, there is great importance to the way the application to commence proceedings is submitted. If the individual has no income, for example if he is unemployed, he is required to find work and maximize his earning capacity. Earning capacity will be determined according to his profession and the salary that can reasonably be earned in that profession, or based on his past income, if there has been no change preventing him from continuing to earn accordingly.
Even if there is a medical condition preventing the individual from working, the court and officer will usually not recognize this unless an occupational physician has determined that the individual cannot work or can only work part-time, or if National Insurance has recognized loss of working capacity.
In some cases the individual will be given several months to find work or increase his salary so that it suits his earning capacity.
Expenses are also taken into account in a way that varies between individuals: an individual who needs to support children clearly has higher expenses than a single individual with no dependent children, which will be taken into account. However, if the individual has adult children living at home, they will expect them to contribute to the household income if they are not serving in mandatory military service.
In any case where circumstances change in a way that justifies reducing the monthly payment, an application can be submitted to the officer or the court to request reducing the monthly payment. However, in order to reduce the set monthly payment there must be proof that there has been a significant change in circumstances or that there was a substantive error in the determination made by the officer. Therefore, although the monthly payment can be reduced, it is advisable to enlist an insolvency attorney already at the stage when the monthly payment is set – when submitting the application for an order to commence proceedings, in order to avoid mistakes which could later cost the individual hundreds or thousands of shekels per month in the form of a payment exceeding his ability.
You can consult an insolvency attorney from our firm if you are considering submitting an insolvency application, and receive advice tailored to your personal circumstances, income and expenses regarding the monthly payment in such proceedings.