Considering insolvency proceedings? Here are some things you need to know!
What is insolvency?
Insolvency means the inability to repay debts.
When a person is unable to pay their debts, one of the possible solutions is insolvency proceedings.
The procedure was previously called “bankruptcy,” and starting in 2019, following a change in the law, it was called by its new name.
The process lasts between one and four years. It begins with a freeze on all collection proceedings against you (removal of liens, threatening phone calls, etc.) and ends with a complete cancellation of the debts.
It is important to say that there are other options for settling debts – debt settlement under court supervision, or direct negotiations with creditors, but insolvency is an option that is always on the table (especially if it is not possible to finance a debt settlement), and therefore it is important to be familiar with it.
What does the country get out of this?
If you are unable to repay your debts, the state – or anyone else – has no interest in leaving you in this situation for the rest of your life.
The state knows that living in debt harms your health, your relationship, and your ability to advance at work and raise children in peace, so the sooner you get out of debt, the better for everyone.
A decrease in household debt means more employment and consumption, and less health and welfare spending, which is good for the economy and society as a whole.
And what about the banks?
Banks currently provide consumer credit in the amount of NIS 200 billion, and are managing to collect almost the entire amount (98.5% to be exact).
In the insolvency process, debts are erased, and the banks lose the loans they gave you.
True, debts must be paid, and when you fail, it’s unpleasant, but banks take the risk into account when they give loans, and of course know how to deal with losses.
Okay, so we decided to go for insolvency.
How does it work?
The procedure begins at your lawyer’s office. After you have consulted with a lawyer and decided to choose the insolvency route, you will be required to fill out forms in which you will declare your income, expenses, assets, and debts. Documents must be attached to the application according to the attached list. It is important to organize the required documents as quickly as possible, so that there are no unnecessary delays, foreclosures, etc.
The forms will be submitted by an attorney to the “Supervisor of Insolvency and Financial Rehabilitation Proceedings” (or for short – “the Commissioner”) – a division in the Ministry of Justice responsible for insolvency proceedings. The Commissioner will review the forms and within 30 days you should be given an “order to commence proceedings” (the deadline may be extended, especially if all the required documents were not attached to the application). Please note that at this stage you have only met with your attorney. Incidentally, an attorney is the one who is supposed to mediate the procedure for you, and guide you throughout, so it is important to choose an attorney that you trust!
An order to commence proceedings, as its name suggests – the order that commences insolvency proceedings.
The order was issued by the “supervisor” and states 5 things:
1. Delay of proceedings – all enforcement proceedings and all legal claims are delayed. No more foreclosures or knocking on the door. No more letters and phone calls from the bank. You can breathe again, and sleep peacefully at night.
2. Payment order – The order sets a fixed monthly payment, which should be adjusted to your abilities. If the payment is too high, you can submit a request to have it reduced. It is important to pay the payment order every month, before any other payment. Remember – this is your “exit card” from debt. Arrears may lead to the cancellation of the insolvency procedure, which is a shame.
3. Bimonthly report – Every two months you will be required to report on a special form about the expenses and income you had during that period. The lawyer/financial advisor at Fresh start will guide you on how to fill out the report for the first time, and then you can do it yourself. It is not very complicated, but it is a bit exhausting, and still – it is important to submit the reports on time and not accumulate arrears, otherwise it may lead to the cancellation of the procedure, which is a shame.
4. Appointment of a trustee – The trustee is a private attorney who works for the trustee, and his job is to manage the case. The trustee will invite you for a clarification call, to check whether the information you provided is correct (an attorney will prepare you for the clarification call). The trustee will also review the reports you submitted, and will submit to the court a recommendation on the “repayment plan”, which we will explain shortly.
5. Court hearing – As part of the order opening the proceedings, a date for a court hearing will be set, approximately one year after the start of the proceedings (details below).
Approximately three months after the start of the procedure, the trustee will invite you to a consultation call at his office. The consultation call will take place in your area of residence, and if the date is inconvenient for you, you can request to change it. You may also request to transfer the call to “Zoom”. A preparatory call with an attorney will take place close to the date of the consultation.
You are allowed to attend the clarification meeting with your lawyer, but in our opinion, in most cases it is not necessary. On the contrary – the presence of a lawyer can only be interpreted as if you have something to hide. On the other hand – it is very important to hold a preparatory meeting with your lawyer, before the clarification meeting .
The inquiry itself usually lasts about 45 minutes, and as part of it, you will be asked about the details you provided in the request to open proceedings – the circumstances of the entanglement, income and expenses, assets, etc. This is actually your only meeting with the trustee, in which he is supposed to be impressed with you, and subsequently give a recommendation on an outline for concluding the procedure. Therefore, it is important to prepare for the inquiry, come calmly, speak honestly and at eye level, and share with the trustee the many difficulties you are surely facing, in order to create a basis of trust and empathy between you and the trustee.
The trustee is supposed to prepare a protocol of the investigation, and give you a copy of the protocol at the end of the investigation. If he does not do this – you have the right to demand the protocol. The trustee is also entitled to demand that you submit such and such documents.
After the investigation, there is a period of several months during which not much happens (except for monthly payments and filing reports), until the court hearing, and this is an excellent time to focus on your financial rehabilitation.
You can go over the first bimonthly report that you will have to submit in the process with an attorney, and learn from it what is correct in your financial conduct and what needs to be corrected. In order to prepare and submit the reports, you must collect receipts for all expenses made in cash or with a card. You can prepare the subsequent reports yourself. As mentioned – during this period, it is very important to make sure to pay the monthly payment and submit the reports on time, in order to prevent the accumulation of arrears and the extension or cancellation of the process.
As stated, as part of the order to open proceedings, a date is set for a hearing on the “financial rehabilitation order.” The hearing will take place approximately one year after the commencement of the proceedings before a magistrate’s court judge (or the registrar of execution, if the debts are up to 150,000 NIS). In preparation for the hearing, the trustee will submit a summary report to the court, containing a recommendation on a “repayment plan” – a plan that determines the amount you will need to pay to receive a “discharge” (i.e., the order that relieves you of your debts).
In principle, the repayment plan will be based on a monthly payment tailored to your abilities (for example – 1,000 NIS), for a period of 36 months (the court has the authority to extend the period in certain circumstances). If you have the option of repaying the entire amount in one payment (in the above example – 36,000 NIS), you can at any stage ask the court for permission to pay the remaining amount immediately, thus ending the procedure and receiving a “discharge order.”
If the proposed plan is too high in relation to your financial capabilities, you are of course entitled to object to it (with the help of your attorney). The final decision is the court’s, but the positions of the trustee and the supervisor usually have a great influence on the final outcome. In many cases, we prefer to reach a compromise prior to the hearing, thereby giving you certainty and peace of mind.
Especially after the hearing – it is important to be careful about making payments and submitting reports, and if you encounter the slightest problem, or if there is a change in circumstances (unemployment, illness, birth, etc.) – immediately contact your lawyer or the economic rehabilitation coordinator of “Fresh start” (for participants in the aforementioned program), and we will help you solve the problem.
To receive the discharge, you must pay the fund the full amount determined in the repayment plan. The amount can be paid in installments, as determined by the court, and if you have the opportunity to raise the full amount and pay it all at once – this is also possible (subject to court approval. It is worth consulting with an attorney, of course). Please note that unless otherwise determined – you must continue to submit the bimonthly reports until you receive the discharge.
From the moment you receive the discharge order, the procedure is over, and all debts you had up until the date the procedure was opened are erased , with the exception of alimony debts, fines, and debts created through fraud (such as tax evasion, etc.). In effect, you have received invitations to open a new page in life, without debts.
The fact that you were insolvent will still appear on your credit report , so you will not be able to easily obtain credit in the near future. Three years after receiving the discharge, you can contact the Bank of Israel and request to “clean up” your credit history.
Insolvency – an opportunity that is important to take advantage of!
The success of the legal process depends primarily on you. If you follow all the instructions, there is no reason in the world that you will not receive the long-awaited discharge. Four critical components for the successful completion of the process:
- Pay your monthly payment on time – never fall behind or late. Just like paying your mortgage or rent before all other payments, this is the next most important payment.
- Submit reports on time - as above. No delays and no arrears. True, dealing with reports is sometimes stressful, and can also be a bit intrusive, but this is your ticket out of debt. On the contrary, take advantage of the reports to learn about your financial conduct and improve it, thereby preventing a return to debt.
- Good faith and cooperation – Good faith is a condition for granting a discharge. Provide the trustee with the documents and information he needs, do not pay debts to anyone, and do not try to work "under the table" or hide assets. This will only complicate you for no reason. If you have any doubts – consult your lawyer.
- Maintain contact with your attorney – legal representation ends at the end of the procedure, after you have received a dismissal order. For any problems or changes that arise during the procedure (even after the hearing) – contact your attorney immediately, update him and consult with him.
Some important recommendations for those starting the process:
- Open a new bank account, at a bank with which you have no history. This way you can operate without restrictions. This is a balance-only account, meaning – no checks, no credit card (only a Direct card) and no credit limit. With the new account, you can operate online, use an immediate debit card (Direct) and make standing orders. According to the Bank of Israel guidelines, you can open an account at any bank you want, and not necessarily at the Postal Bank. Is the bank raising difficulties? Read here what you can do.
- Once you enter the process, you are not allowed to accumulate new debts, so you must make sure that all current bills are paid. At the same time, you are not allowed to pay “past debts” (and it’s a waste of money), so if, for example, you have a past debt of several thousand shekels to the electricity company, it will be included in the insolvency process, but the current bills must be paid every month on time.
- Keep track of your income and expenses. To do this, you must collect and document all receipts (yes, yes, including falafel for 10 NIS), and receive a complete picture at the end of the month. You can do this “manually”, with the help of a financial advisor, or use one of the recommended apps (details on this page). In any case, it is important not only to view the reports – and the process in general – as a “chore” but also to use them as an opportunity to learn about your financial conduct, and understand how to avoid further complications.
- Pay and submit reports on time!!! As mentioned, this is your “exit ticket” out of debt.
Fresh start's economic rehabilitation plan:
As part of the “Fresh start” economic rehabilitation program, you can receive financial support – individual and group – in which we will help you prepare and process your bimonthly reports, so that you can learn from them what works and what doesn’t, what expenses can be changed, and what rights are worth taking advantage of. You can also use an application that will assist you in preparing your monthly reports, all to help you navigate the legal process safely, and bring you to financial balance and peace of mind, and to prevent further financial entanglement.
The program is in collaboration with the National Insurance Funds, and is provided at no additional cost (except for the payment to the lawyer), subject to a screening process.
