Quick Answer: Personal insolvency in Israel is governed by the Insolvency and Economic Rehabilitation Law 5778-2018, which replaced the British-era Bankruptcy Ordinance in September 2019. Any individual who cannot pay their debts can apply to the Insolvency Authority (Rashut HaHissyot). Once the District Court issues an opening order, an automatic stay stops all creditor enforcement immediately. Most cases resolve through a 3-year repayment plan, after which remaining debts are discharged. Foreign nationals with strong Israeli connections can also access the process from abroad under the COMI test in Section 104.

For decades, personal bankruptcy in Israel meant a slow, punishing liquidation process borrowed from British colonial law. The 1980 Bankruptcy Ordinance treated financial failure as something close to a moral failing: assets were sold, discharge was not guaranteed, and debtors could remain burdened by old debts indefinitely. The system gave creditors little incentive to negotiate and debtors little reason to cooperate.

The 2018 law changed all of that. It came into force in September 2019 and introduced a rehabilitation-first framework broadly comparable to Chapter 13 of the US Bankruptcy Code. The premise is that a debtor who cooperates, makes monthly payments from disposable income, and complies with the trustee's requirements will receive a clean discharge within 3 years. The perpetual debt trap is gone. For foreign nationals who built up Israeli debts and later left the country, or overseas investors with overextended Israeli real estate positions, understanding how this law works is often urgent and poorly explained in any English-language source.

1. The 2018 Law: A Rehabilitation-First Approach

The old Israeli bankruptcy system was straightforward but harsh: the debtor lost all assets, a trustee sold them, creditors received a proportional dividend, and the debtor was discharged only after the trustee's final report was approved — if at all. Debtors with no assets had nothing to surrender and no reliable path to discharge.

The 2018 law reversed the priority. Section 175 instructs the court to prefer a structured rehabilitation plan over liquidation in every case where the debtor has any regular income. A plan has three components: the debtor makes monthly contributions from disposable income, submits annual financial reports to the trustee, and complies with conduct restrictions. Completing the plan triggers automatic discharge under Section 253.

Liquidation still exists, but it is the fallback for debtors who have significant assets and no income, or a pattern of non-cooperation. For most individual debtors — employees, small business owners, retirees — the expected route is a plan, not an asset sale.

In Practice — The Insolvency Authority and Its Role: The Insolvency and Economic Rehabilitation Authority (Rashut HaHissyot), established under the Ministry of Justice in September 2019, administers all personal insolvency proceedings. It receives applications, appoints trustees, monitors compliance, and maintains the public insolvency register. Branch offices operate in Jerusalem, Tel Aviv, Haifa, and Be'er Sheva. Initial contact is made through the Ministry of Justice's online Shaam portal rather than by visiting a branch. The Official Receiver (Kamal Hissyot) at each branch acts as government-side administrator in smaller or uncomplicated cases. Private trustees — licensed Israeli attorneys or CPAs — handle more complex matters and are paid from the estate.

2. Who Can File for Personal Insolvency in Israel

The 2018 law draws a clear line between individuals and companies. Personal insolvency covers yechidim (natural persons). Companies, partnerships, and cooperatives follow separate insolvency chapters under the same statute.

There is no minimum debt threshold. A debtor who owes NIS 20,000 and cannot pay can file. In practice, the Insolvency Authority applies a proportionality check: proceedings are not opened where administrative costs would clearly exceed any benefit to creditors, and cases with total debt below roughly NIS 15,000 are rarely accepted without additional circumstances. But there is no statutory floor.

The statutory test under Section 291 is cash-flow insolvency: the debtor is unable to meet their debts as they fall due. This is not a balance-sheet test. A property owner whose net equity exceeds total debts but who cannot access that equity to service current obligations still qualifies. That matters for owners of Israeli apartments who are cash-poor but asset-rich on paper.

Filing can be voluntary (by the debtor) or involuntary. An involuntary application by a creditor under Section 104(b) is available where the creditor holds an unpaid judgment or a debt not genuinely disputed and the debtor has failed to pay within 21 days of a formal demand.

In Practice — What the Insolvency Authority Reviews Before Accepting a Case: The Authority screens every application before referring it to the District Court — a process that takes 30 to 60 days. Screeners examine: the ratio of total debt to annual income; whether the debtor made a genuine attempt to settle before filing; and whether the application discloses assets honestly. An application that understates assets or omits recent property transfers is flagged for deeper investigation and in serious cases referred to the Israel Police for fraud review. Crucially, the automatic stay does not activate during the screening period. Creditors retain full Execution Office enforcement rights until the court issues its opening order. Debtors who are facing imminent salary garnishment or bank freeze while an application is pending can apply separately to the District Court for an interim stay under Section 157.

3. The Filing Process: Step by Step

Step 1 — Online application via Shaam

The debtor submits an electronic application through the Ministry of Justice's Shaam portal. Required attachments include: a complete list of debts, creditors, and amounts; a statement of all assets (including overseas property); details of all income sources; monthly expense itemization; and a signed declaration that the disclosure is complete and accurate. The filing fee is NIS 1,000, payable online. Debtors who genuinely cannot afford the fee may request an exemption by attaching proof of income — typically bank statements from the previous three months.

Step 2 — Insolvency Authority screening

The Authority reviews the application over 30 to 60 days. If accepted, it issues a formal recommendation to the District Court to open proceedings. If rejected, the applicant can appeal directly to the District Court under Section 104(c). Most voluntary applications by genuinely insolvent debtors are accepted at this stage; rejections typically occur where assets were concealed or where a creditor's involuntary application does not meet the technical requirements.

Step 3 — Court opening order

The District Court normally issues the Order for Commencement of Insolvency Proceedings (Tzav Techilat Halikhim) within 7 to 14 days of receiving the Authority's referral. The order is published in the Authority's public register and in the official gazette. From this moment, the automatic stay activates and a trustee is assigned. The debtor receives a written notice listing every restriction that applies from that date.

Step 4 — Trustee appointment and creditors' meeting

The trustee contacts all known creditors and calls a creditors' meeting within 60 days of the opening order. Creditors must file a proof of claim within the period set by the trustee — typically 60 to 90 days from the meeting notice. Late claims may be admitted at the trustee's discretion but receive reduced priority in any distribution.

Step 5 — Repayment plan or liquidation recommendation

After the creditors' meeting, the trustee submits a recommendation to the court: propose a rehabilitation plan or proceed to liquidation. The court decides after hearing the debtor, the trustee, and any objecting creditors. This stage typically concludes within 3 to 4 months of the opening order in straightforward cases.

In Practice — Cost Estimate for a Personal Insolvency Case:
  • Filing fee: NIS 1,000 (waivable on proof of financial hardship)
  • Trustee fees: A percentage of distributions to creditors — 3% on the first NIS 50,000 distributed, 2% on the next NIS 450,000, and 1.5% above NIS 500,000. Minimum fee: NIS 8,000
  • Attorney fees: NIS 3,000 to NIS 10,000 for a straightforward voluntary filing through to plan confirmation; more where overseas assets or contested creditor claims are involved
  • Monthly contribution: Typically 25% to 40% of net disposable income above the court-set living allowance
  • Standard plan duration: 36 months; 18 months for early discharge on exceptional cooperation; up to 60 months where the court sets a higher contribution period

4. The Automatic Stay: What It Stops and What It Does Not

From the moment the District Court issues the opening order, Section 159 of the 2018 law imposes a broad automatic stay (atzira automatit) on creditor action against the debtor. The stay covers:

  • All pending and new civil court proceedings against the debtor personally (excluding matrimonial and criminal proceedings)
  • All Execution Office enforcement actions, including wage garnishments, bank account freezes, and property levies
  • Enforcement of personal guarantees the debtor gave for third-party debts — but only against the debtor personally, not against co-guarantors
  • Repossession of goods or property subject to a floating charge

The stay does not cover:

  • Child support and alimony obligations — expressly excluded and fully enforceable throughout the proceedings
  • Criminal fines and administrative penalties
  • New debts incurred after the opening order (the debtor remains fully liable for these and they cannot be discharged in the current case)
  • Rights secured by a specific mortgage on a particular property — the mortgagee retains its foreclosure right, though the court can impose a delay of up to 90 days under Section 160 to give the debtor time to find alternative arrangements
In Practice — What Happens to Execution Office Files on the Opening Order: All open Execution Office (Hotzaa LaPoal) files against the debtor are suspended automatically when the Insolvency Authority notifies the relevant branch. Bank accounts previously frozen under attachment orders are released — but funds in those accounts pass to the trustee's control, not freely back to the debtor. Banks typically request a copy of the court's opening order before unfreezing. From the opening order date onward, the debtor needs the trustee's written approval before withdrawing more than the monthly living allowance set by the court. That allowance is calculated using the National Insurance Institute (NII) family welfare tables and typically runs from NIS 4,500 to NIS 8,500 per month for a single individual, adjusted upward for dependents.

5. Repayment Plan vs. Asset Liquidation

The 2018 law creates two main tracks, and the choice between them shapes how the entire case plays out.

The Rehabilitation Plan (Tochnit Shikvum)

This is the default for any debtor with regular income. The court sets a monthly contribution amount — usually 25% to 40% of the debtor's net income after the living allowance — to be paid over 36 months. The period can be reduced to 18 months for debtors who cooperate fully and carry lower debt levels, or extended to 48 or 60 months where the court determines the debtor can contribute more.

During the plan, the debtor must: make every monthly payment on time; report any income increase within 30 days; avoid new credit above NIS 1,000 without the trustee's prior written consent; not leave Israel for more than 30 continuous days without the trustee's permission (though this is routinely relaxed for legitimate work travel and family visits); and file an annual income statement with the trustee. Completing the plan triggers an automatic discharge order under Section 253.

Asset Liquidation (Peiruk Nechasim)

Liquidation applies where the debtor has significant realizable assets but limited income, or where the debtor's conduct warrants it. The trustee inventories all assets, sells non-exempt ones, and distributes proceeds to creditors in the statutory priority order under Chapter 12 of the 2018 law. Once all realizable assets are distributed, the debtor may apply for discharge under Section 255, though the court retains discretion to deny or condition it based on the debtor's conduct during proceedings.

Exempt assets that cannot be liquidated under Section 183 include: clothing, household furniture, and occupational tools up to NIS 10,000 in total value; a single motor vehicle up to NIS 25,000; and pension and provident fund savings that are locked in under the Pension Fund Law and the Provident Fund Regulations.

In Practice — What Happens to Your Israeli Apartment Under Insolvency: This is the question most property-owning debtors ask first. The answer depends on whether the apartment is mortgaged and whether it is the debtor's primary residence. A primary residence with an outstanding mortgage is not immediately sold: the mortgagee bank retains its security interest and can foreclose, but insolvency proceedings give the debtor up to 90 days under Section 160 before any forced sale proceeds. The debtor's equity above the mortgage forms part of the estate. An apartment held debt-free with more than NIS 150,000 in equity can be ordered sold by the trustee unless the debtor arranges to buy out that equity from the estate at market value. Overseas property follows the same rule: it must be declared, and the trustee can seek to realize it. Foreign-located apartments are often the most contentious issue in Israeli insolvency cases involving non-resident debtors.
Advertisement

6. Discharge: When Your Debts Are Wiped Out

Discharge (shichrur) is the point at which the debtor's pre-insolvency debts are legally extinguished. The 2018 law makes discharge conditional rather than automatic, but a debtor who follows the rules should receive it at the end of the plan period without needing a separate court application.

Section 253 allows the court to discharge the debtor on completion of the rehabilitation plan. Section 255 allows early discharge at 18 months where the debtor has shown exceptional cooperation, consistently paid the monthly contribution, and the total debt is below a threshold the court sets on a case-by-case basis. For a debtor with total debts below NIS 200,000 who has made every payment on time, early discharge at month 18 is realistic.

The following categories of debt survive discharge and remain enforceable even after the discharge order is issued:

  • Child support and alimony arrears, and ongoing maintenance obligations
  • Debts arising from fraud, intentional misrepresentation, or wilful misconduct as found by a court
  • Criminal fines, administrative penalties, and victim-compensation orders
  • Debts not listed in the original insolvency application, because the creditor had no opportunity to participate in the proceedings

After discharge, the debtor's name remains on the Insolvency Authority's public register for 7 years. Banks and major creditors routinely check this register before extending credit. Obtaining a mortgage or significant personal loan during that period is difficult, though not impossible — many Israeli banks will extend smaller amounts of credit two to three years post-discharge, particularly where the debtor has maintained a positive current account.

7. Foreign Nationals and Israeli Insolvency

Many foreign nationals who lived or worked in Israel, took on debts there — mortgage shortfalls, business loans, personal guarantees, unpaid Execution Office files — and later returned abroad want to know two things: can those debts follow them overseas, and can they access the Israeli insolvency process from abroad.

The answer to both is yes, in certain circumstances.

Can Israeli debts follow you abroad?

An Israeli creditor holding an unpaid judgment can apply to recognize and enforce it in the debtor's country of residence through that country's foreign judgment recognition process. For common expat destinations — the US, UK, Germany, Canada, and Australia — Israeli judgments are generally recognizable, though the process takes months and requires engaging attorneys in both countries. Creditors with smaller debts often write them off rather than pursue cross-border recognition. For debts above USD 50,000, the recognition route is taken seriously and should not be dismissed.

Can you file for Israeli insolvency while living abroad?

Yes, but Israeli jurisdiction must be established. The 2018 law follows a COMI (Center of Main Interests) test now codified in Section 104. A foreign national whose financial life was centered in Israel — who lived, worked, and incurred debts there — and who has not yet built a COMI in a new country may still fall under Israeli insolvency jurisdiction. The Insolvency Authority has accepted filings from individuals residing abroad where Israeli debts were the primary liability and the debtor could demonstrate sufficient Israeli connection.

A debtor who left Israel four years ago and has no remaining Israeli assets or income will have difficulty establishing Israeli COMI — their insolvency would naturally proceed in their current country of residence. A debtor who left 18 months ago and still owns an apartment there facing bank foreclosure has a much stronger case for Israeli proceedings to handle all debts together.

In Practice — Foreign National with Israeli Mortgage Arrears: A Canadian-Israeli dual national lived in Tel Aviv for eight years before returning to Toronto in early 2025. He left behind an apartment with a NIS 900,000 mortgage and NIS 340,000 in personal loan arrears. Bank Hapoalim began foreclosure proceedings and an Execution Office file showed NIS 480,000 in total outstanding obligations. His Israeli attorney filed for insolvency with the Tel Aviv Insolvency Authority, asserting Israeli COMI based on prior residence, the Israeli-located apartment, and Israeli-source debts. The Authority accepted the filing. The District Court issued an opening order activating an automatic stay on the foreclosure for 90 days under Section 160. During those 90 days, the debtor negotiated with Bank Hapoalim to surrender the apartment in full satisfaction of the mortgage, while the insolvency rehabilitation plan covered the NIS 340,000 in personal loan arrears through monthly contributions from his Toronto income over 36 months. On plan completion, the outstanding personal loan balance was discharged. Total time from filing to discharge: 40 months, including the pre-acceptance screening.