Insolvency & Economic Rehabilitation for Individuals

Insolvency and economic rehabilitation proceedings for individuals are designed to create a comprehensive legal framework for dealing with debts: examining the individual's true financial capacity, gathering their assets in appropriate cases, and formulating a plan that will allow them to rehabilitate and reach a discharge. That said, the process is not an automatic solution and is not suitable for everyone, and at times a better outcome can be achieved through an arrangement outside the process. It is therefore important to examine the full picture — the scope of the debts, the assets, the income and the alternatives — before filing a petition.

When debts disrupt everyday life

Debts that make ordinary day-to-day management impossible can affect every area of life: the bank account is restricted, attachments are placed on salary and assets, enforcement (Hotza'a LaPoal) files accumulate, and pressure from creditors keeps mounting.

Before filing a petition it is important to examine the scope of the debts, the identity of the creditors, the level of income, the family unit, the assets and rights, the debtor's past conduct, and the possibility of reaching an arrangement outside the process. Choosing the wrong track may create unnecessary restrictions and even endanger assets that could have been protected through advance planning.

The Or Rovner Law Office provides personal representation to individuals in insolvency proceedings, from the initial review and building the strategy, through filing the petition and conducting matters vis-à-vis the Commissioner, the Enforcement Authority registrar, the trustee and the court, and up to obtaining a discharge and concluding the process.

When is it right to consider insolvency proceedings?

Insolvency proceedings may be suitable where debts exist on a scale that cannot practically be repaid within a reasonable time, where several enforcement files are being conducted in parallel, where attachments and restrictions disrupt daily life, or where disposable income does not allow the creditors' demands to be met.

However, the mere existence of debts does not require entering the process. Sometimes a better result can be achieved through a direct arrangement, spreading the debt over time, consolidating files, a request for a payment order, or a planned realization of an asset. The first step is therefore a legal-financial diagnosis, not filling out a form.

Handling the existing debt — and rehabilitation that prevents the next one

Legal proceedings can consolidate the debts, freeze collection actions and lead to a discharge, but on their own they do not fix a household budget running a deficit or a business that continues to lose money. For the exit from debt to be stable, it is important to examine, in parallel, current cash flow and the reason the debts arose in the first place.

Before choosing a track, three questions should be answered:

• What is the full scope of the debts — including loans, overdraft, credit cards, guarantees, private debts and debts for which no files have yet been opened?
• Is current income sufficient for present living expenses, even before repaying the debts?
• Did the debt arise from a one-off event, such as illness or unemployment, or from an ongoing monthly deficit that requires a further change?

Where there is an ongoing problem, alongside legal representation it is possible to combine household financial guidance, realization of entitlements, or business consulting. This is not an admission of failure but part of the rehabilitation process: the goal is not only to obtain a discharge, but to finish the process with a better ability to manage on the day after.

The main stages of the process

Suitability review and building the financial picture

All debts and proceedings are examined, along with household income, living expenses, real estate assets, vehicles, savings, social rights, expected inheritances, guarantees, transfers made in the past, and the circumstances in which the debts arose. The purpose of the review is to identify risks, missing documents and possible alternatives in advance.

Preparing the petition for an order opening proceedings

The petition includes a full, document-supported account of the individual's financial situation. Precise drafting and full transparency are very important: discrepancies between the data, omission of an asset, or failure to explain a financial action may burden the process and give rise to claims of lack of good faith.

Grant of the order opening proceedings

Once the order is granted, the individual enters a consolidated legal framework. As a rule, individual collection proceedings against them are frozen and creditors are required to act within the insolvency process. The order sets out, among other things, a monthly payment, an obligation to file reports, restrictions applying during the period of the process, and the identity of the trustee appointed to examine the individual's situation.

The interim period and the trustee's examination

During this period the individual must be careful to make the payments, file income and expense reports, provide documents and cooperate with the trustee. The trustee examines the circumstances in which the debts were created, the individual's conduct, the debt claims, their assets and their earning capacity. At times clarifications, an investigation, supplementary documents or an explanation of actions taken before the process was opened are required.

Hearing and grant of an economic rehabilitation order

Once the examination is complete, a findings report is filed and the appropriate repayment plan is considered. The court may set a payment period, directions regarding assets, financial-conduct training, and additional conditions. In appropriate cases it is possible to request an adjustment of the monthly payment, shortening or bringing forward the repayment plan, and sometimes also an immediate discharge — all according to the circumstances of the case and the provisions of the law.

Completing the plan and obtaining a discharge

Upon meeting the conditions of the rehabilitation order, a discharge from dischargeable debts may be obtained. It is important to know that there are debts for which the law sets special rules, or which are not erased in the ordinary way. It is therefore necessary to check in advance the composition of the debts and what the practical meaning of the discharge will be.

Issues requiring special attention

• A residential apartment or rights in a real estate asset
• Pension funds, provident funds, managers' insurance and social rights
• A vehicle required for work, for a disability or for special family needs
• Debts to authorities, maintenance (child/spousal support), fines and debts created in exceptional circumstances
• An active business or activity as a self-employed person

• Guarantees for the debts of a company or of a family member
• Transfers of assets, gifts or sales carried out before the process was opened
• A change in income, an inheritance, compensation or a significant receipt during the process
• Arrears, failure to file reports, or a request to cancel the process due to defaults

Which forum conducts the process?

The identity of the body authorized to hear the petition is determined, among other things, by the scope of the debts and the track set out in law at the time of filing. Certain individual proceedings are conducted through the Commissioner and the Magistrates' Court, and others through the Enforcement Authority office. Since the threshold amounts are updated from time to time, the correct jurisdiction and forms must be checked close to the time of filing the petition.

Mistakes that may endanger the process

• Transferring an asset or right to a relative in the belief that the asset will not be discovered
• Omitting a bank account, income, a social right, an inheritance or a debt from the petition
• Creating new debts or taking credit without the ability to repay during the process
• Stopping payments and the filing of reports without first submitting an appropriate request
• Giving different versions to the trustee, the Commissioner and the court
• Assuming that every attachment and restriction is cancelled immediately upon sending the petition
• Ignoring document requirements or decisions because of personal difficulty, instead of requesting an extension or assistance in time

What should you bring to the first consultation?

• An up-to-date list of all creditors and files
• Warnings, decisions and an up-to-date printout of the enforcement files
• Pay slips or income data for members of the household
• Bank account and credit card statements
• Ownership documents for an apartment, vehicle, savings and social rights
• Loan agreements, guarantees and judgments
• A brief description of the circumstances in which the debts arose and of any unusual actions taken with assets in recent years

There is no need to wait until every document is in your hands in order to receive an initial consultation. That said, an organized picture allows the alternatives and the risks to be assessed more precisely.

What does the legal representation include?

The representation includes a full mapping of the debts and assets, examination of alternatives, preparation of the petition and the documents, handling supplementary requirements, ongoing conduct vis-à-vis the trustee and the Commissioner, preparation for the investigation and the hearing, filing appropriate motions, handling disputes over assets and debt claims, motions to change a payment order, curing defaults, bringing forward the repayment plan, and obtaining a discharge.

In a boutique firm, every file is handled personally. The goal is not merely to get the client into the process, but to build a track for them that can realistically be met, and to accompany them until the legal and financial end of the crisis.

Do not face the process alone

A decision to enter insolvency should be made after a thorough examination of the full picture. An orderly consultation can clarify which track is appropriate, what risks exist, and what is required in order to reach a discharge as safely and efficiently as possible.

Frequently asked questions