Bankruptcy proceedings are intended for a person who has fallen into debt and is unable to repay it.
Contrary to popular belief that a company can 'go bankrupt', bankruptcy deals only with individuals, and the corresponding procedure for an insolvent company (i.e. a company that cannot meet its financial obligations) is 'liquidation'. In bankruptcy proceedings, the debtor is the person who has incurred debts, and the creditor is any entity (company, individual, partnership) to which the debtor owes money.
What is the purpose of bankruptcy proceedings?
The bankruptcy process has several purposes. The one, For the benefit of creditors – the bankruptcy process allows for the gathering (collecting and concentrating) of all of the debtor's assets and distributing them in the most efficient and best manner, and in accordance with the ratio of the debt owed to each creditor. The second, for the benefit of the debtor – the procedure allows a debtor who has encountered difficulties and is unable to repay his debts, to turn a new page in his financial life by ultimately discharging his debts and receiving a discharge from the debts (as will be expanded upon later). Another goal The process, which has a broader social goal, is to return the bankrupt to the workforce, and return him to a path where he maximizes his earning capacity, which increases aggregate social wealth.
How can I enter bankruptcy proceedings?
The bankruptcy process can be initiated by the debtor, or by the creditor, who, in accordance with the conditions set forth in the law, can file a petition for bankruptcy. The court that will hear the petition is the District Court.
We will explain several steps that occur in the bankruptcy process:
Collection Order - The District Court may issue an order to collect the debtor's assets. The collection order refers to debts that have accrued to the debtor's credit. Until the date of issuance of the summons only. Once the collection order is issued, creditors are prohibited from initiating or continuing legal proceedings against the debtor,[1] Including opening and managing an execution case against the debtor, unless they have received approval from the court. However, a creditor whose debt is secured (mortgage, pledge, etc.), can realize his security with the permission of the court. Also, the collection order does not stay criminal proceedings and proceedings such as a lawsuit for eviction.
In the event of a collection order, the court usually appoints a special administrator/trustee whose job is to gather and consolidate the debtor's assets, to estimate and examine the amount of the debtor's debts to the various creditors (debt claims, as explained below), and at the end of the day to maximally repay the debts approved by the trustee from the debtor's assets.
The official receiver (the body officially responsible on behalf of the state for the bankruptcy process) serves as a supervisor of the trustee's actions, and in the event that no trustee is appointed for the debtor's assets, the official receiver will serve as trustee for the debtor's assets.
Debt claims - A debt claim is the creditor's way of trying to collect the debt from the debtor in light of the fact that he is prevented from initiating legal proceedings against the debtor after the collection order has been issued. The debt claim will be filed within six months of the date the collection order is published in Reshumot.
Creditor Arrangement - The debtor can reach an arrangement with his creditors throughout the bankruptcy process and even before it. The creditor arrangement will be submitted for approval by the court, which can accept the arrangement, condition it, or suspend it.
Bankruptcy petition hearing - After six months from the date of the issuance of the collection order, the court will hold a hearing on the bankruptcy petition to which the debtor, the creditors who filed a debt claim, and the official collector will be summoned. The court may reject the bankruptcy petition if it is convinced that the petition was filed in bad faith, with the aim of abusing the bankruptcy proceedings, or if it is convinced that the debtor can repay his debts. The court may also reject the decision on the petition in order to allow the debtor to settle his debts by way of compromise or arrangement. If the court decides to declare the debtor bankrupt, the assets of the bankrupt will be divisible among the debtor's creditors and will be awarded to the trustee. After the bankruptcy order is issued, the trustee may act to realize the debtor's assets and distribute them among the creditors.
A debtor who has been declared bankrupt is subject to financial restrictions (definition as a "specially restricted customer", prohibition on using debit cards, prohibition on founding a corporation) that are intended to prevent him from creating new obligations. Most of the restrictions are not "new" to the debtor, as legal proceedings were initiated against most debtors even before the collection order, in which similar restrictions were imposed on the debtor.
How can a bankruptcy proceeding be terminated?
Discharge Order - In fact, obtaining a discharge order is the debtor's main goal in the bankruptcy process. Discharge is the final stage in which the court relieves the debtor of all his debts (except for certain debts). The bankrupt can file a request for discharge at any time he wishes, but according to the instructions of the official receiver, the granting of a discharge order may be considered after 4 years from the date of the issuance of the collection order.
As part of the application for discharge, the court will hold a hearing on the status of the debtor, the debtor's creditors, the trustee and the official receiver, and will consider the debtor's conduct before and during the bankruptcy proceedings, as well as his debts and assets. The court may grant the discharge, suspend it or make it conditional on various conditions.
In conclusion, The bankruptcy process is a complex process, in which there are various, and sometimes conflicting, interests whose economic significance may be extremely significant. Therefore, we recommend that both the debtor and the creditor receive comprehensive legal advice, within the framework of which the circumstances of each case will be examined on a case-by-case basis.
Lawyer Liron Naronsky fromWolfson Weinstein & Co.', deals with law Commercial and corporate law, Dissolution and rehabilitation of companies, Consulting and assisting corporations and individuals in steps to prevent insolvency.
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