Obligations of Debtors in Insolvency Proceedings
In insolvency proceedings, the debtor encounters a number of obligations that are imposed on him by the official authorities conducting the proceedings. The debtor’s cooperation and good faith constitute a very important factor as the proceedings progress toward receiving the desired discharge. The legislature imposes a number of obligations on debtors in insolvency proceedings in order to successfully complete them. This article explains in detail what obligations are imposed on the debtor in insolvency proceedings and what their implications are for the continuation of the proceedings.
Letter of Commitment
The insolvency proceedings commence by the filing of a request for a Receivership order and the declaration of the debtor as bankrupt. The official Receiver submits his opinion on the request and the request is then forwarded to the court for approval. In order for the court to approve the debtor’s request, the debtor must sign the letter of commitment, in which he undertakes to accept, inter alia, the following provisions:
- Give notice of any change in his personal details and financial situation.
- Comply with the payment order.
- Comply with the various restrictions set forth in the law.
- Undertake not to accumulate additional debts.
- Be prevented from leaving the country.
- Report to the Special Administrator for interrogation.
If the debtor violates one of the provisions set forth in the letter of commitment, this violation may frustrate the continuation of the proceedings. Sometimes the debtor even risks having lawsuits filed against him.
Periodic Reports
One of the obligations of the debtor in insolvency proceedings is to give notice of changes in his financial situation. The debtor is required to submit to the Special Administrator every two months a detailed report on every amount of money he or his household members earn or use in the two months relevant to the report.
This obligation is one of the main principles of the insolvency proceedings. According to these reports the Special Administrator checks whether the debtor is exhausting his earning potential and using his money sparingly, as befits a person in bankruptcy proceedings. Thus, the debtor’s good faith and his degree of obligation to the insolvency proceeding in order to settle his debts are examined. In this way, the debtor’s true financial ability is also determined and, based on this, a repayment plan is created at the end of the proceedings.
A breach of this major obligation may result in the termination of the proceedings.
Payment Order
The debtor in insolvency proceedings is required to comply with a payment order set by the official Receiver and approved by the court in accordance with his financial capacity as stated in the debtor’s request for a Receivership order and his bankruptcy declaration.
The debtor must pay the amount stated in the payment order each month to the Receivership, and the amount is divided between the creditors at the end of the proceedings.
Failure to comply with the payment order in a timely manner may result in the cancellation of the proceedings.
The amount of money stated in the payment order is determined according to the income and expenses of the debtor and his family members living with him, according to the periodic reports. However, a debtor who does not realize his earning potential – for example, a debtor who does not work and has no justifiable reason for this – his income will be calculated according to the income he could have earned according to the degree of his education, experience, and professional skills. In addition, excessive expenses are not considered when examining the debtor’s financial ability for the purpose of determining the amount of money set in the payment order.
The debtor must deposit his monthly payments at the Mizrahi-Tefahot Bank or the Israel Postal Bank. It is also possible to pay by credit card via the Israeli Ministry of Justice website.
If the debtor is unable to meet the monthly payments set for him, or if there is a change in his earning capacity, he may apply to the court to reduce the monthly payment to an amount he can afford. In the same way, the Special Administrator may also apply for an increase in the debtor’s monthly payments if he sees that the payment order set for him is low in relation to the debtor’s true ability.
These requests are forwarded to the opposing party for an opinion (if the request is submitted by the debtor, it will be forwarded for an opinion to the Special Administrator and / or the official Receiver and vice versa), and then the court gives its decision on the matter.
Obligations of Debtors in Insolvency Proceedings – Legal Assistance
The debtor’s compliance with the obligations imposed on him is essential for the success of the insolvency proceedings and for obtaining the desired discharge. In contrast, non-compliance of the debtor with his obligations will inevitably lead to termination of the proceedings. If you are interested in entering into insolvency proceedings, it is important that a lawyer who specializes in the field assists you and gives you a detailed explanation of your rights and obligations. If you are in the middle of such proceedings and are unable to meet your obligations, it is important that you receive appropriate representation that will help you eliminate your failures, before it is too late, and return to the straight path that will bring you to the end of the proceedings and the beginning of a new life.
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