Insolvency – Basic concepts and introduction to the process

Insolvency is a situation a person gets into when, in the course of their business, they find themselves owing a lot of money, they have no way to repay their debts, and they ask the state to recognize this. In a state of insolvency, a debtor ceases to be the owner of their assets, and these are used to redeem their debt to the creditors.

Also, the insolvency proceeding serves as a means of protecting the debtor from legal proceedings against them (in the execution, for example). In the future, after being recognized as bankrupt, the debtor will be able to put their financial entanglements behind them and start a new chapter.

Insolvency proceedings – how does it work?

The purpose of the insolvency proceeding is to reach a compromise between the debtor and their creditors. The debtor is granted state protection from the legal proceedings carried out against them, and the creditors will be able to receive their money in an orderly manner. Insolvency proceedings are carried out only against individuals – it is not possible to file an insolvency petition against a company, but only against its owners (a separate liquidation process can be opened against the company).

Insolvency proceedings can only take place against adults (those over 18 years of age, or against minors who, when performing the actions that led to the insolvency proceedings, acted as adults and were also recognized as such by the other party) and against residents of Israel, or those who conducted their businesses in it that led to insolvency.

An insolvency petition can be filed both by the debtor themselves and by their creditors. The application can be submitted independently, but it is more advisable to seek the assistance of a lawyer who will professionally guide the process. The minimum amount of debt that allows the opening of insolvency proceedings today stands at approximately NIS 15,000. This amount varies from time to time and must be checked before submitting the application.

It should be remembered that insolvency proceedings are proceedings that will lead to a thorough examination of the debtor’s assets and financial capabilities. This process is accompanied by investigations of the debtor and their creditors, investigations of family members, field investigations and surveillance. Therefore, insolvency proceedings are only suitable for those who truly cannot repay their debts, and not for those who are trying to use this process as a means of fraud, in order to escape from their creditors and evade payment. The receiver of assets, and after him the court, carefully examine the debtor’s financial statements, and can cancel the process at any stage if a suspicion arises, which can also lead to significant punishment.