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Insolvency and Economic Rehabilitation Law: Why is an arrangement preferable to an insolvency proceeding?

In many cases, a debtor would find himself under definitions such as "limited in means" or "consolidation" until the end of his life.

The Bankruptcy and Economic Rehabilitation Act was recently created just to change this situation.

How does it work and how can it be used for economic rehabilitation?

all the answers

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• Insolvency

Adv. Shai Shir, in collaboration with Zap Mishpati

Thursday, 14 January 2021, 09:58

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An economic problem should not be the end of life (Photo: ShutterStock)

The Bankruptcy and Economic Rehabilitation Act was created to help debtors recover financially, without entering into cumbersome procedures that would last for many years and leave a "Cain signal" on its economic conduct.

The legal procedure under the new law replaces previous solutions for debtors in execution, which would usually perpetuate the debt for many years and leave the debtor in complex definitions such as "limited in means" or "consolidation" for many years, and in most cases until his last day.

Lawyer Shai Shir, who specializes in exercising civil rights, expands on the purpose of the law and how the law makes it possible to significantly reduce debts and bring about the economic rehabilitation of the ordinary person.

What is the purpose of the Insolvency and Economic Rehabilitation Law?

The law is intended to resolve the situation where biting interest rates have skyrocketed to huge amounts.

In this situation not only do the creditors not receive a share of their debt but the debtor is required to continue to pay a paltry monthly payment, which does not lead to the settlement of the debt in any way.

The law creates a procedure that ultimately leads to a solution to the debtor, securing some payment for creditors and economic rehabilitation of many households who have consumed credit beyond their repayment capacity and have reached a point where they are limited in means.

The purpose of the law is to enable people to settle their debt quickly and efficiently.

An example of this purpose can be found in sections 3018-27 of the law, which deal with debt settlement with creditors, not as part of a process i.e. that the debtor can settle his debt with his creditors under the auspices of the court without being declared bankrupt and Meged can significantly reduce his debts.

Is Insolvency Actually Bankruptcy?

The Insolvency Law also replaced the outdated bankruptcy ordinance which despite years of reform, required a long and tedious procedure, which often lasted many years and many of the debtors who initiated bankruptcy proceedings did not get the desired dismissal and the procedure in their case was canceled.

There is no doubt that the Insolvency and Economic Rehabilitation Law which was enacted in the last year brings with it a new line to the public of debtors and even to their creditors.

Who can apply for this procedure?

Debtors with a partial ability to repay their debts, which means that they may have fallen into this situation due to a crisis or other injury, which led to a decrease in their income, but nevertheless they manage to manage their financial lives and even free up some of the income for debt repayment.

I will note that an insolvency proceeding is the last resort as it has implications for a person's civic life and ability to leverage his or her personal wealth, so it is important to explore further ways to reach settlements with the banks.

How is this procedure performed?

The process is carried out before the court on the initiative of the debtor.

In the first stage after the debtor has deposited the court delays all the legal proceedings so that he can continue to proceed without fear of foreclosures and enforcement proceedings which will interfere with the success of the settlement.

The debtor for his part submits an offer to his creditors for payment of 30% of the debts after reduction of execution interest, this is examined by a lawyer on behalf of the court and the debtor receives a debt settlement, which allows him to continue financially and put this chapter behind.

Why are such high debts accumulated in execution?

The execution system works according to the method of calculating interest per year, which allows for draconian growth of the debt to amounts amounting to hundreds of thousands of shekels.

Execution procedures are conducted over years and the debts intensify.

For example, a person against whom enforcement cases were opened for 20 years went to my office with a cumulative debt that reached NIS 1 million. NIS to his creditors for debts, which as stated were allegedly over NIS 1 million in execution.

These are the arrangements that the court is sponsoring today - it freezes proceedings, lowers interest rates and allows the debts to be settled without going into a very long procedure.

Why are such high debts accumulated in execution and how are they coped?

(Photo: ShutterStock)

That is, can it be understood from your words that most of the debt consists of commissions and interest?

Yes, it is a debt of interest and commissions, and it is a debt that inflates according to a law that does not exist, since the Execution Law is a law enacted in the 60s and has a built-in problematic, as the execution payments are very high and include interest at 18% per annum. When interest rates are offset - the debt returns to its original size.

By the way, the law has another advantage, because after receiving the approval of the settlement, the person returns to the same person, ie he is not marked by the court as the debtor, but as a person who received a settlement, who simplified the procedure, allowed the interest rate reduction and conditional on creditors' consent. Which are the banks, credit companies, private individuals and the like.

What is the common interest of creditors and debtors in the settlement process?

The interest is in the possibility of the debtor obtaining a clean financial identity card, a completely different situation requiring him to apply for insolvency and limited credit for seven years. I recommend to any citizen who falls into debt before insolvency proceedings are required to test his ability to withstand such a proceeding.

And what is the threshold condition in which it is advisable to examine an arrangement over insolvency?

When a person has the ability to pay 30% of the debts. And those who have collapsed financially will not be able to do so. In this case, these are households that have the partial ability to meet the arrangement and payments that will be determined for them. The arrangement determined by the court will be determined by division into guaranteed payments. And this is why creditors tend to agree to these offers, because in this way they manage to get at least a proportionate share of the debt - which does not happen in an insolvency proceeding. I therefore recommend to anyone who is able to make the arrangement and prefer it over insolvency. The procedure takes several months compared to a procedure of insolvency, does not leave a stain and allows you to continue to be financially sound on an ongoing basis. It is important to understand that the court is trying to help the debtors reach an agreement with the creditors - finally, this is in the interest of the whole system.

How can an insolvency lawyer help with this?

The lawyer represents the debtor before the director of the settlement and before the court, and he is the one who creates the connection between the issues and negotiates to reach agreements. In the draft, the lawyer is working to freeze the proceedings against the debtor. It is important to approach a lawyer who specializes in insolvency arrangements and proceedings, knows how to manage such an arrangement and can bring about its success so that the debtor refrains from reaching insolvency proceedings for all that this implies.

Lawyer Shai Shir, specializes in the exercise of civil rights and accompanies citizens in settlement proceedings to repay their debts. For more information and contact David Sakharov 22 Rishon LeZion West.

Phone - 0523111146

shayshir.law@gmail.com target = "_ blank"> shayshir.law@gmail.com

Article courtesy of Zap Legal The

information presented in the article does not constitute legal advice or a substitute for it and is not Constitutes a recommendation for taking proceedings or avoiding proceedings, and anyone who relies on the information in the article does so at his own risk.

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