Debt Repayment plans in Israel - – bankruptcy attorneys

How do debt repayment plans in Israel work? If you have entered an insolvency proceeding or are considering starting one, you will certainly hear – and may have already heard – the term “repayment plan”. Our offices specialize in issues of debt and bankruptcy. Attorney Nechama Ovadia will explain the debt repayment plan that is created for a debtor during insolvency proceedings, what this plan includes and what are the decisive factors that shape it.

A repayment plan is a plan prepared by the special receiver, with the purpose of paying off the debtor’s debts. The repayment plan is in fact a sort of “condition”; once it is fulfilled, the debtor receives the debt cancellation decree and the proceeding concludes. The repayment plan is designed by the special receiver according to the debtor’s financial and personal situation before entering the proceedings and during them, and even in accordance with the debtor’s proper behavior during the proceedings. The special receiver is required to prepare a repayment plan for the debtor within 15 months of the collection order and to submit it to the court, who decides whether to approve it as is, amend it, or reject it.

Purpose of the repayment plan:

As stated, one of the main purposes of the proceedings is to financially rehabilitate the debtor with the goal of helping him return to a normal financial life and to restore him as a productive member of the economy. However, one cannot forget that it has an additional purpose: to repay the debts to his creditors.

As part of the repayment plan, the special receiver recommends the sum that the debtor must pay in order to be absolved of his debts and how the debtor will pay that sum. The repayment plan includes monthly payments over a number of years (usually between 3-5 years after the hearing, except for cases with exceptional justification), as well as the income from realizing the debtor’s assets, such as cashing in an “advanced study fund” (keren hishtalmut), selling an apartment or car, etc.

Considerations in forming a repayment plan:

One consideration that the special receiver takes into account when building the repayment plan is the debtor’s financial capacity. Therefore, before forming the repayment plan, the debtor is called to an investigation by the special receiver regarding the reasons for creating his debts, as well as his current financial situation, in order to evaluate his repayment ability. Likewise, the debtor is required to submit bi-monthly reports in which he lists his income and expenses during the proceedings, and the special receiver relies on these when forming the repayment plan.

As part of the investigation, and during the proceedings, the special receiver is authorized to require from the debtor, and from a third party, documents and information linked to his financial assets, and these assets are also taken into consideration when determining the repayment plan. Other considerations taken into account by the special receiver are the debtor’s family status, age, education, profession, medical condition, and the whole family unit’s expenses and income.

Debt repayment plan – assistance from an attorney

The debt repayment plan essentially determines the monthly sum that the debtor will be required to pay for the period after declaring bankruptcy, and therefore this sum is extremely significant, since the debtor will be paying it for many years. If, for example, the sum is one that the debtor cannot manage, the proceedings are likely to be canceled.

An attorney’s involvement can help the debtor maintain with proper behavior during the proceedings themselves, as well as providing advice and explanation during preparation of the monthly reports and of course during the investigation itself, all factors which can help greatly in determining the size of the payment. This is why professional assistance can save the debtor a significant amount of money, and lead to setting of a sum that will in fact match the debtor’s financial capabilities, in order that he can live with dignity during the years of the repayment plan.

Likewise, the repayment plan is submitted to the court several months before the hearing on the debtor’s application to declare bankruptcy. The debtor has the right to oppose the debt repayment plan and bring factual and legal information contradicting the findings of the special receiver and his considerations in forming the repayment plan. Thus, in essence, the debtor gets an opportunity to propose to the court his own repayment plan, one that he can comply with. Therefore, it is important to obtain legal representation by an attorney with expertise in the field, who will bring the debtor’s position before the court, backed up by judicial and legislative sources, regarding the recommended repayment plan.