In January 2014, a long-awaited reform with the Israeli bankruptcy laws went into effect. Since the changes, there has not been a decent test case brought to trial regarding Israeli citizens requesting bankruptcy who are currently living abroad.

The reform from 2014, has two goals: To create an effective mechanism to distribute the assets of the debtor who is requesting bankruptcy and to allow the person to start over with a clean slate in a relatively short period of time.

A bankrupt person (called “poshet regel” in Hebrew) will have to prove two main legal tasks in court:

  1. To convince the court that he has in good faith, and with the best intentions, tried to pay off his debts as much as he is capable of doing.
  1.  He will also need to convince the court that declaring bankruptcy is the only solution and it is in the best interest of the general public as well as the debtors (not only his interests).

What is involved in starting this procedure?

A Power of Attorney (POA) in Hebrew, or legally translated to any other language you speak, will be needed. This POA can be signed at any Israeli Embassy or Consulate abroad in person, or in Israel in front of any lawyer.

In addition to the POA, you will file an affidavit (a declaration) prepared by an experienced lawyer. This document must be in Hebrew and signed at any Israeli Embassy or Consulate abroad in person. If you don’t understand Hebrew, the Israeli representative abroad will not allow you to sign this document without a legal translation in your language.

Most documents needed to start a case can be scanned and sent by email.

Costs:

Fees for opening a file are estimated at $500 (paid when the case is opened). Lawyer fees (paid in advance) range between $ 3,000 to $ 8,000 dollars. Every case is different and the fees depend upon the complexity of the case.

Monthly payments, that are stipulated by the Judge after the case is opened and based on the paperwork served, have to be paid in Israel.

These payments are made today directly at Bank Mizrahi. It is possible to make a transfer every few months and the lawyer in charge will take care of the monthly payments for you.

Timing:

Judges do not look lightly when people delay their request for going bankrupt, therefore, the sooner the better.

The longer it takes a person to start the process, the less likely the chances their bankruptcy petition will be approved.

Abandoning the procedure may be considered a lack of good faith by you, and as a result, the entire process will have to be restarted in the future.  Sometimes a new process cannot be re-started until a few years have passed, and in some cases it can never be restarted.

Bankruptcy exclusions:

If the nature of the debts are the result of a “criminal act” committed by you in Israel, this procedure may not be available.

Some examples of “Criminal Acts” regarding this procedure include; theft, extortion, illegal gambling, and crimes connected to drugs or money laundering, etc.

Money owed to the State and other types of debts:

“Regular debts” (to banks, credit card companies etc.) are not considered to be “criminal acts” but taxes, fines, VAT, and some National Insurances (Bituach Leumi) may not be completely discharged in a bankruptcy. Usually a mutual agreement can be reached in court and the debts are eventually discharged or reduced.

A Last word – the word of negotiation:

Bankruptcy is an expensive and relatively slow process.  It may be the difference between someone staying away from Israel forever, or coming back with a fresh start.

If old debts are preventing you from returning to Israel, you now have the bankruptcy tools to restart your life in Israel.  I always tell people to try and negotiate their debts.  They know the chances of you returning to Israel to pay them are slim. Therefore, they will be more willing to compromise.

Bankruptcy should only be considered as a last resort if negotiating fails.