Insolvency and Economic Rehabilitation Process for Individuals
The insolvency and economic rehabilitation process is a structured legal framework designed to allow an individual debtor to settle outstanding debts while undergoing financial recovery. It begins with an application and a commencement order, moves through an interim period of supervised payments and asset management, and concludes with a court-issued rehabilitation order and eventual discharge from remaining financial obligations.
Key Takeaways
The process requires meeting minimum debt thresholds and a mandatory cooling-off period.
A comprehensive application detailing personal and financial status must be submitted online.
A court-appointed trustee manages assets, verifies claims, and oversees the debtor's conduct.
The interim rehabilitation period typically lasts 36 months, requiring consistent periodic payments.
Successful completion results in a discharge order, erasing remaining debts and lifting restrictions.
What is the first phase of the individual insolvency process?
The initial phase of the individual insolvency process involves submitting a formal application to the Supervisor of Insolvency and Economic Rehabilitation, leading to a commencement order. To qualify, applicants must meet specific prerequisites, including having debts exceeding the statutory ceiling and observing a mandatory cooling-off period if previous proceedings occurred. Once the application is reviewed and approved, the court issues a commencement order, which immediately imposes a stay on proceedings against creditors, appoints a trustee, and sets a periodic payment schedule, effectively initiating the debtor's path toward financial recovery and supervised rehabilitation.
- Prerequisites for application submission: Debts must exceed the legally defined ceiling.
- Prerequisites for application submission: Absence of prior proceedings (adherence to a cooling-off period).
- Submitting the application via the Supervisor's website, including a detailed list of required documents.
- Required documentation: An updated personal and financial status report, including monthly living expenses.
- Required documentation: A detailed explanation of the circumstances that led to the accumulation of debts.
- Required documentation: A complete list of all creditors and their addresses, specifying secured and unsecured status.
- Required documentation: A list of all the debtor's assets, including bank accounts, with current valuation estimates.
- Required documentation: Income verification documents, such as salary slips or VAT reports.
- Review of the application and issuance of the commencement order, which includes appointing a trustee.
- Issuance of the commencement order: Immediate imposition of a stay on all collection proceedings against creditors.
- Issuance of the commencement order: Determination of the periodic payment amount (payment order).
How is the economic rehabilitation managed during the interim period?
The interim period, often lasting 36 months, is the core of the economic rehabilitation process, focusing on the debtor's commitment to financial discipline and debt repayment. During this time, the debtor must make consistent monthly payments as determined by the court order and submit bi-monthly financial reports for the trustee's rigorous review. The trustee actively manages the debtor's assets, liquidating non-essential holdings and verifying all creditor claims to ensure fair distribution. This phase is crucial for demonstrating good faith and adherence to the recovery plan before final recommendations are made to the court regarding the ultimate discharge.
- Required monthly payments: Adherence to the payment order throughout the fixed period (typically 36 months).
- Reporting requirements: Submission and review of bi-monthly financial reports by the appointed trustee.
- Trustee review: Conducting a clarification meeting (birur) with the debtor.
- Creditor verification: All creditors must submit formal claims of debt (proof of claim).
- Claim approval: The trustee examines and approves the validity of all submitted debt claims.
- Asset management: Realization (liquidation) of assets that are not considered essential property.
- Financial assessment: Examination of the debtor's earning capacity and any applicable financial restrictions.
What happens after the interim period concludes in the insolvency process?
Following the successful completion of the interim period, the trustee prepares a comprehensive final report detailing the individual's conduct both before and during the proceedings. This report includes a crucial recommendation to the court, proposing either a structured economic rehabilitation plan, an immediate discharge, or, in cases of non-compliance, cancellation of the process. The Supervisor then reviews this recommendation and provides their own input to the court, often recommending a specific course of action, such as granting a rehabilitation order or canceling the proceedings. Ultimately, the court holds a hearing to review all findings and issue a final judgment, which may include specific instructions regarding asset realization or addressing fraudulent activities.
- Trustee's final report: Detailing the individual's conduct before and during the commencement order period.
- Trustee's recommendation: Proposal for an economic rehabilitation plan, immediate discharge, or process cancellation.
- Supervisor's recommendation: Independent advice to the court regarding the economic rehabilitation order, discharge, or cancellation.
- Court hearing: Final discussion and decision by the court.
- Court decision: Granting an economic rehabilitation order for a fixed or indefinite period.
- Court decision: Addressing specific case matters, such as voiding transfers, asset concealment, or preferential treatment of creditors.
- Court decision: Ordering further clarification or supplementary actions and scheduling an additional hearing.
- Court decision: Issuing a judgment to cancel the proceedings and setting conditions for any future application.
When does the individual receive a final discharge from their debts?
The final phase culminates in the granting of a discharge order, which formally concludes the insolvency proceedings and provides the individual with a fresh start. This order, which can be full or partial, legally erases the remaining unpaid debt balance, allowing the debtor to move forward without the burden of past obligations. Crucially, receiving the discharge triggers the removal of all associated financial restrictions, such as those imposed by the Bank of Israel, and restores the individual's ability to manage their finances independently, including renewing passports and traveling abroad. However, the discharge can be revoked in rare, severe cases involving fraud or deliberate concealment of assets, underscoring the importance of transparency throughout the process.
- Granting the discharge order: Formal issuance of a full or partial discharge.
- Effect of discharge: Legal cancellation of the remaining debt balance that was not paid during the process.
- Post-discharge actions: Removal of all financial restrictions, including those related to the Bank of Israel.
- Post-discharge actions: Restoration of the ability to renew a passport and travel outside the country.
- Post-discharge actions: Return to independent and autonomous financial management.
- Exceptional circumstances: Potential cancellation of the discharge order in cases of proven fraud or deliberate concealment of information.
Frequently Asked Questions
What are the minimum requirements to start the insolvency process?
You must meet two main criteria: your total debts must exceed the statutory ceiling defined by law, and you must adhere to a mandatory cooling-off period if you have had previous insolvency proceedings or applications in the past.
What is the role of the trustee during the interim period?
The trustee oversees the entire rehabilitation phase. They review bi-monthly financial reports, verify and approve creditor claims, manage the debtor's assets, and ultimately recommend a final rehabilitation plan or discharge to the court.
What happens immediately after the court issues a commencement order?
The commencement order immediately imposes a stay on all legal proceedings by creditors, preventing further collection actions. It also appoints a trustee to manage the case and establishes the initial periodic payment schedule the debtor must follow.
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