Bankruptcy (Hadlut Paraon): Debt Discharge Procedure for Individuals

Core Concept

The bankruptcy procedure, or "Hadlut Piraon" (חדלות פירעון), is a legal process allowing individuals unable to pay their debts to obtain financial rehabilitation. Its goal is not to punish the debtor, but to give them an opportunity to start a clean slate after completing a specific payment plan approved by the state. As a result of the successful completion of the procedure, most debts are written off.

Who is Eligible?

The right to initiate the procedure is determined primarily by the total amount of debts and the inability to service them.

• Residents of Israel finding themselves in a situation of insolvency.
• Debtors with a total debt up to 166,627.55 NIS (amount updated periodically): application is submitted to the Execution Service (Hotzaa la-Foal).
• Debtors with a total debt over 166,627.55 NIS: application is submitted to the Commissioner for Insolvency Proceedings (Ha-Memoune al halikhei hadlut piraon).

Who is NOT eligible?

• Persons who created debts in bad faith (e.g., through fraud).
• Debtors who can pay their debts but evade doing so.
• Persons currently undergoing the procedure or who have recently completed it with violations.

Your Rights

From the moment the file is opened ("Tzav le-ptichat halichim"), you receive certain protection and rights:

• Freezing of all execution proceedings: All cases against you in Hotzaa la-Foal are suspended. Creditors can no longer collect debts from you directly.
• Protection against new lawsuits: Creditors cannot file new lawsuits for old debts.
• Establishment of a single monthly payment: An affordable payment is assigned to you, which you deposit into a special account throughout the process.
• Right to financial rehabilitation: At the end of the procedure (usually after 1-4 years) and upon fulfillment of all conditions, you receive a "Hefter" — an order discharging remaining debts.

Step-by-Step Guide

1. Consultation with a lawyer. This is the most important first step. The procedure is complex, and a mistake can cost you the entire process. Find a specialist in "Hadlut Piraon".
2. Preparation and filing of the application. Your lawyer will help serve all documents and file an online application with the appropriate authority (Hotzaa la-Foal or the Commissioner's office).
3. Receiving the order to open proceedings ("Tzav le-ptichat halichim"). Usually issued within 30-60 days. From this moment, you are under protection. A trustee ("Ne'eman") will be appointed to you.
4. Cooperation with the trustee. You are required to submit reports on income and expenses every two months and follow all their instructions.
5. Compliance with the payment plan. Regularly make the established monthly payment. Any delay can lead to the termination of the procedure.
6. Intermediate hearing. Approximately 9 months after the start of the process, a plan for your financial rehabilitation will be drawn up.
7. Receiving the order for debt discharge ("Tzav Hefter"). After fulfilling all conditions of the plan, the court or registrar issues a final order writing off your debts (except for certain categories, such as fines or alimony).

Document Checklist

To file an application, you will need a full set of documents confirming your financial situation.

• Identity Card (Teudat Zehut).
• Detailed list of all creditors with debt amounts.
• Full list of your assets (real estate, car, savings).
• Bank account statements for the last 6-12 months.
• Pay slips ("Tlushim Maskoret") for the last 6-12 months or reports for self-employed.
• Copies of contracts from which debts arose (if any).
• Completed and signed declaration of insolvency ("Tatzhir").

Pitfalls

• Complete honesty. Any attempt to hide income, assets, or provide false information is a criminal offense and will lead to the immediate termination of the procedure without the right to debt discharge.
• Strict restrictions. From the moment the file is opened, restrictions are imposed on you: a ban on leaving the country (can request cancellation), a ban on using credit cards and checkbooks, restrictions on opening a new business.
• The process requires patience. The procedure lasts several years. Do not expect instant results.
• Not all debts are written off. Debts for alimony, fines to government bodies, and debts arising from criminal acts are generally not subject to discharge.
• Do not miss payments. Missing a monthly payment without a valid reason and without coordination with the trustee is a direct path to the annulment of the procedure.

Contacts and Links

Since official links and forms can change, the only reliable source is your lawyer. They will provide you access to the online system for filing reports and tracking your case.

For general information, you can search on the official government websites of the department:

• Execution Service (רשות האכיפה והגבייה)
• Commissioner for Insolvency and Financial Rehabilitation (הממונה על הליכי חדלות פירעון ושיקום כלכלי)

Never use unofficial links and do not pay intermediaries promising to "speed up" the process.

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