The new Insolvency and Economic recovery Law that entered into force in 2018 was intended to replace the Bankruptcy Ordinance – and the bankruptcy process in Israel.
The law distinguishes between those who have debts up to 150,000 NIS, who can file for insolvency at the Bailiff’s Office, and those who have debts above 150,000 NIS, who must file for insolvency in the Magistrate’s Court.
The insolvency process in court begins with filing a petition for an order to initiate proceedings. The petitioner, if he is the debtor, is called the “individual” in legal terms . The order to initiate proceedings stops the proceedings against the individual, and protects him from the creditors which can no longer take legal actions against him, and also sets a monthly payment that the individual will have to pay, and the date for a hearing at which an order for economic recovery will be issued.
The period between the order to initiate proceedings and the order for economic recovery is the most intensive and difficult period for the individual. During this period, his expenses and income will be examined, through a bi-monthly report that he will have to submit every two months. He will be investigated regarding his assets and the circumstances of his financial entanglement, through the trustee – who will be appointed by the court – and finally a report will be submitted to the court in which a recovery plan will be proposed .
The plan, called the Economic Recovery Plan, is usually a monthly payment, and if the individual also has assets – a plan to liquidize the assets and to add the proceeds to the collection fund which will ultimately be distributed among the creditors. For example, if the individual owns a residential home, the home will be sold, sometimes by the mortgaging bank, sometimes by the individual himself, and sometimes by the trustee.
There are assets that can be seized and those that cannot be seized. For example, a car that the individual needs for work will usually not be seized. The trustee appointed by the court is the one who will usually check what assets the individual has and formulate the economic rehabilitation plan, which is supposed to last three years.
In exceptional cases the court will grant the individual an immediate discharge instead of giving an order for economic recovery, but stringent criteria must be met for this purpose.
Also, at any stage it is possible to submit a proposal for an arrangement with creditors, which if approved – will lead to an immediate discharge.
If the individual meets the payments and the plan, at the end of the process he will be given a discharge order. The discharge order marks the end of the process, and it is what legally erases the individual’s remaining debts, so that he can start with a clean slate free of debt.
However, not all debts can be erased by the discharge order – more on that can be read in the continuation articles of our office.
The purpose of the insolvency process is twofold: First, it is intended to assist creditors in collecting debts quickly with complete transparency regarding the individual’s assets and ability to pay. Second, it is intended to help the individual pay his debts and recover him financially, so that he only pays what he can afford while emphasizing that he will be able to live in dignity despite his debts, and will not need to be hounded by creditors, and ultimately he will receive a discharge so he can embark on a new path and start a new page in his life, without debt.
The insolvency process is a complex bureaucratic process, which has significant implications for the individual’s future financial life. Therefore, it is very important not to start such a process without consulting an expert lawyer in the field, and usually it is not possible to go through the process without legal representation and assistance until the order for economic rehabilitation is given.
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