Insolvency Proceedings: A New Beginning Through Economic Rehabilitation

An empty wallet

Insolvency proceedings (formerly known as 'bankruptcy') represent a situation where an individual or business receives a discharge from all or most of their debt based on the recognition that they are unable to meet their payment obligations. This is a condition where the sum of expenses and liabilities significantly exceeds the sum of income and assets.

In simple terms - when you don't have enough money or assets to pay your debts.

The Insolvency and Economic Rehabilitation Law allows those with financial debts who are unable to repay them to enter a process during which they will receive a discharge from their debts and enter a rehabilitation process that will help them start a new chapter in life. The discharge process is not simple, and it is recommended to read the information carefully.

Purposes of Insolvency Proceedings

The process has several objectives designed to create a relative win-win situation for both the debtor and creditors:

1. Economic rehabilitation of the debtor and establishing a framework for personal financial sustainability during the insolvency period.

2. Maximizing the amount returned to creditors (with the understanding that without an arrangement, the debtor would collapse financially and creditors would receive nothing).

3. Providing the debtor with an opportunity to start afresh (after completing the insolvency period).

   
   

It's never easy to admit that we've lost control of a situation. When it comes to financial debts, the realization that we can no longer repay the debt, while late payment penalties and interest continue to rise, can cause significant distress. In a reality where 9% of Israeli citizens will have a debtor file in the Enforcement and Collection Authority at some point in their lives, we must remember an important fact – this can happen to anyone. A debt arrangement is not always a realistic option. This understanding is now permeating through legislators and enforcement authorities in Israel. The new insolvency process offers a glimmer of hope and paves a clear and safe path to financial rehabilitation. This is an opportunity we should seize with both hands, as at the end of it, we can regain control of our lives.

The Insolvency and Economic Rehabilitation Law has made significant changes to one of the most difficult, complex, and frustrating processes in Israel. Until this reform was implemented, debtors operated under harsh restrictive conditions for years without seeing light at the end of the tunnel. Paradoxically, the process often significantly deteriorated the debtor's repayment ability and reduced the likelihood that the debt would be repaid. Now, with the insolvency process oriented toward rehabilitation, your options are more extensive than ever. Here, we will go through step by step the journey ahead of you after declaring insolvency.

How is the Insolvency Process Now Conducted?

The most important step we must take is to consult with an attorney specializing in this field. Often, despite it seeming that there is no escape from declaring insolvency, there are actually simpler and less extreme channels available. An insolvency attorney specializing in the field can lay out all available options for you and examine the possibility of creditor arrangements without dealing with the restrictions of the insolvency process. If indeed it is found that this is the most appropriate channel, your attorney will submit an application on your behalf to the court or the Enforcement and Collection Registrar. If the amount is less than ₪53,745.48, the entire process can be conducted with the Registrar, without court involvement, allowing for a faster and simpler process. Higher amounts, however, will require filing an application with the court.

The process begins with submitting an application to the court or the Insolvency Commissioner.

After reviewing the application, an order to open proceedings is issued. As part of the process:

• A trustee is appointed to examine the debtor's financial situation

• A payment plan and financial management program is established for the debtor

• Certain restrictions are imposed on the debtor (such as a travel ban)

• Options for the debtor's economic rehabilitation are examined

  
  

At the end of the process, which typically lasts about 4 years, the debtor is granted a discharge - meaning the remaining debts are erased.

Due Diligence

After the court or registrar examines the application and if it is deemed appropriate to recognize your inability to repay your debt, a special commissioner will be appointed by the court to conduct due diligence. The commissioner will examine your financial situation, including a review and valuation of all your assets against your liabilities. Your honesty and transparency with the commissioner are essential to ensure that the process is approved and to avoid unnecessary complications. Establishing good faith in the circumstances of your debt creation is crucial for approving the process.

Approval of Program Terms and Payment Schedule

In light of the trustee's findings and after all your arguments are presented by your attorney, a debt repayment plan will be formulated. As part of the plan, negotiations will be conducted with creditor representatives, and the monthly repayment amount and various restrictions imposed on the debtor will be determined. Creditors are given an opportunity to participate in a meeting where the plan is discussed and to approve it. This is also an opportunity for creditors who have not yet filed claims to take part in the arrangement.

Implementing the Plan Until Discharge

After the onset of insolvency, you will need to submit bi-monthly reports detailing your financial conduct. Additionally, throughout the repayment period, you will be subject to a travel ban and will not be able to receive credit cards or manage an independent business unless a special request is filed. The special commissioner will closely monitor the entire process and ensure that you have met all your obligations. At the end of the process, you will be able to receive a discharge from your debts and start a new chapter in life.

How Has the Reform in This Field Fundamentally Changed the Process?

The Insolvency and Economic Rehabilitation Law, 2018, was an important message for debtors and corrected a long-standing injustice.

Here are some of the most significant advantages offered by the reform:

Receiving Discharge Within a Fixed Time

Debtors have ceased being permanent slaves to their repayment plan. With the entry of the reform into effect, debtors have gained entry to a process at the end of which most will be able to receive a discharge within a period not exceeding four years. With professional guidance from a debt discharge attorney, applications for earlier discharge can be submitted, as long as you can meet the criteria. Debtors approved for an insolvency program on an expedited track can receive a discharge after just 18 months.

Extended Validity of Stay of Proceedings

The new legislation allows for freezing proceedings for longer periods, which gives debtors the necessary time to reach appropriate arrangements, negotiate calmly, and formulate a debt repayment plan that is sustainable and ensures economic stability. This time is what significantly increases the debtor's chances of maintaining their repayment ability.

Economic Rehabilitation Programs

Various programs that assist in professional training and proper financial management are now an integral part of insolvency proceedings. Thus, the process has transformed from a means of punishment and restriction to a beneficial rehabilitation program that allows many families in Israel to thrive, even after crises.

​Frankel Amsalem & Co. Law Firm brings years of experience in accompanying debtors and is thoroughly versed in all aspects of the reform in the insolvency field. We would be happy to assist you in exercising all your rights in the process and embark on a new path.

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Q&A

How long does the insolvency process typically take in Israel?

The standard process typically lasts about 4 years, but under the expedited track, discharge can be obtained in as little as 18 months.

What is the minimum debt amount to file through court rather than the Registrar?

Debts exceeding ₪53,745.48 require filing with the court, while lower amounts can be processed through the Enforcement and Collection Registrar.

What restrictions are imposed during the insolvency period? 

Restrictions include a travel ban, inability to obtain credit cards, and limitations on managing an independent business without special permission.

How often must I report my financial status during insolvency proceedings?

You must submit detailed bi-monthly reports about your financial conduct throughout the repayment period.

Can I receive a discharge earlier than the standard period?

Yes, with professional legal guidance, you can apply for an early discharge if you meet specific criteria established by the insolvency system.