Collection of debt in Israel is enforced though the government enforcement agency – “Hotza’a La’Poal”. While the agency may allow debt to be paid off in low monthly installments, the debt incurs very high interest rates and other collection fees, which add a significant financial burden. This leads some debtors to be unable to realistically pay off their growing debt, and effectively be indebted for life.
Personal bankruptcy is a legal procedure for those who have no hope of paying off their debts.
Until recently, the path for filing a personal bankruptcy motion in Israel was unorganized, the court fee relatively expensive, the time it took between filing the bankruptcy motion and getting absolved from debt took many years, and the burdensome process did not provide a clear-cut incentive to the debtor.
However, recent reform in Israeli bankruptcy procedures has made it easier and cheaper than ever to declare personal bankruptcy, allowing debtors to liquidate their assets, get absolved of their debt and get a fresh start to their financial life, within a relatively short amount of time. The fees for filing the motion have also been significantly reduced.
Going through the process of filing personal bankruptcy is not fun, but it does provide a huge relief.
Today, the incentive to file for bankruptcy is obvious.
First, filing a motion for bankruptcy allows the judge to issue an immediate injunction that halts actions by creditors, providing the debtor with immediate protection. This helps eliminate the chaos surrounding the debtor, who is probably exposed to nagging phone calls from creditors, interest and late fees, foreclosure threats, lawsuit threats, etc. which prevent anything productive from getting done.
Second, filing for bankruptcy allows for previous restrictions imposed on the debtor by Hotza’a La’Poal, such as bank seizures, salary confiscations, personal property confiscations, the ability to renew a driver’s license, the right to mange a bank account, the ability to leave the country for work purposes and such, to be canceled within days, allowing the debtor to receive immediate relief.
In light of the recent reform, the expected duration of personal bankruptcy proceedings in Israel is only 18 months, during which time the debtor is to provide the court with monthly financial reports and make monthly payments to the creditor’s fund, based on financial ability.
After 18 months, if no “red flags” are raised, based on the debtor’s financial situation, the court can absolve the debtor of their debt on the spot, or instruct that the debt be absolved on the condition that monthly payments continue to be made on time, for up to 3 years.
For instance, a debtor who for 18 months has paid 500 NIS per month to the creditor’s fund, based on his repayment plan that has been customized to his financial abilities, may request to absolve him of his debt if he pays the amount left based on his re-payment plan for the next 3 years. If the court approves the re-payment plan, the debtor would be absolved of his entire debt, in return for a one-time payment of 18,000 NIS (36 months X 500 NIS).
Since the court determines the monthly re-payment plan based on financial abilities, and not on the size of the debt, this one-time re-payment could be enough to absolve a person who has no assets from a debt of 100,000 NIS, just as it could be enough to absolve a person who has no assets from a debt of 2,000,000 NIS.
Anyone who has a Teudat Zehut who wishes to have their debt absolved may file a personal bankruptcy motion at the local office of the Official Receiver (“Ko’nes Ne’ha’sim”). After the motion is checked and approved for submission by the official receiver, it is sent to the local Israeli District Court, for a judge to issue a Receivership Order, which includes instructions for how much money the debtor should pay the creditor’s fund each month, as well as a court date within 18 months for the bankruptcy hearing to be held. This monthly payment amount is not determined by the amount of debt, but rather by the debtor’s income versus expenses and earning capacity, based on medical and familial situation, age, education, etc.
During this time, as long as the debtor fulfills the Receivership Order, all debt enforcement is halted and previous legal restrictions such bank seizures, salary confiscations, the right to mange a bank account, etc, are lifted.
In most cases, assuming no “red flags” arise, the court grants the bankruptcy motion during the bankruptcy hearing that is held after 18 months, and either absolves the debtor immediately of all debt, or absolves the debtor on the condition that monthly payments continue to be made on time, for up to 36 additional months.
Filing for personal bankruptcy is not a decision to be made lightly and should only be considered if there is absolutely no other option to realistically pay off your debt. However, if it is the right decision in your circumstances, it is best to file a motion for bankruptcy as soon as possible, in order to receive relief and protection as soon as possible, and begin rebuilding your financial life in Israel.