Debts to the bank: how to negotiate a settlement

This guide deals with a debt of a household or a small business to a bank or a credit card company: a loan, an overdraft or a credit line that was not repaid on time. It is linked to the information center on debts and enforcement proceedings.

What the bank must do before and during collection

There is no single law that regulates negotiating a debt with a bank. What does exist is Proper Conduct of Banking Business Directive 450, “Debt Collection Procedures”, which the Supervisor of Banks at the Bank of Israel issued for collecting debts from households and small businesses. It applies to banks and to credit card companies, and a “loan” under it also includes a credit line in an account or on a card (sections 1–4 of the Directive). These are its main duties:

• Notice of arrears: the bank sends a notice with the amount in arrears, the rate of arrears interest and a way to contact it about the debt (section 14).
• Before passing the debt to a lawyer or to collection: a notice with the loan balance, the interest rate, the amount in arrears and how it was calculated, and the details of the debt collection function (section 15). Every such notice also refers to reporting to the credit data database (section 16).
• Access to information: the bank does not block electronic access to the account because of the debt (section 18). Even during legal proceedings you can contact the bank directly and receive account statements and any banking document, immediately or as soon as possible (section 19).
• Payments: the date on which you actually paid is the date that counts (section 20).
• Before a settlement or repayment: information on the debt balance as it stands at the Execution Office, and on request also a breakdown of how it was calculated (section 21).
• Lawyer’s fees: the bank does not collect or demand lawyer’s fees and legal costs unless a court has awarded them, and only in the amount awarded (section 32). At the Execution Office, unless otherwise decided, it may charge the minimum lawyer’s fees set under the Israel Bar Association Law (section 33). Lawyer’s fees included in a settlement agreement are stated in it before signing (section 34).
• Annual notice: when an Execution Office file has been opened against you, once a year you receive a notice with the original debt, the interest, the payments made and the balance. It includes an explanation of any gap between the bank’s balance and the balance at the Execution Office (section 35).

The Directive is a directive of the Supervisor of Banks, not a law. If a bank does not act in line with it, you can ask the Supervisor to look into it: the Supervisor looks into inquiries from the public about their dealings with banking corporations (section 16 of the Banking (Service to Customer) Law, 5741-1981). Applying to the Supervisor does not extend a deadline set in legislation.

A debt settlement with the bank: what to check before you sign

• The payment schedule: a copy of the settlement, including a payment schedule, is given to you after your documented consent. In it the bank states the possible implications of the settlement for you (section 13(b) of the Directive).
• The interest: what interest applies to the settled debt, and whether the arrears interest is canceled, frozen or keeps running.
• Lawyer’s fees: if the fees of the bank’s lawyer or of a receiver were included, they are stated in the settlement before signing (section 34).
• What happens on a breach: how many payments you must miss for the settlement to be canceled, and whether the debt goes back to the full amount.
• An Execution Office file: the bank notifies the Execution Office of the settlement, and the proceedings in the file are stayed as long as the bank has not given notice that you breached it (section 26). The bank reports to the Execution Office every payment it received outside the Office, within seven days (section 25).

When you cannot pay: the tools the law provides

• Payment order: a debtor who cannot pay the debt all at once files with the Execution Registrar, within 20 days of service of the official warning, an application to pay in installments according to their ability, with a declaration of their financial situation and documents (section 7A of the Execution Law, 5727-1967 (חוק ההוצאה לפועל, התשכ״ז-1967)).
• Consolidation of files: a debtor may ask to consolidate all the files pending against them (section 74B of the same Law).
• Insolvency: an application for an order to open proceedings concerning an individual may be filed by the individual, a creditor or the Attorney General (section 102 of the Insolvency and Economic Rehabilitation Law, 5778-2018 (חוק חדלות פירעון ושיקום כלכלי, התשע״ח-2018)). This route changes the whole picture, so look into it before you commit to a settlement you cannot keep to.

Frequently asked questions

The bank threatens to pass the debt to a lawyer. What must it notify me first?

Before handling of the debt passes to the bank’s lawyer or to the debt collection function, the bank sends a notice with the loan balance, the interest rate, the amount in arrears and how it was calculated, and the contact details of the debt collection function (section 15 of Proper Conduct of Banking Business Directive 450).

Can I get a breakdown from the bank of how the debt was calculated?

Yes. Before a settlement and before full repayment, the bank lets you receive information on the debt balance, and on request also a breakdown of how it was calculated (section 21 of Directive 450). During legal proceedings you can ask for account statements and any banking document, and the bank provides them immediately or as soon as possible (section 19).

The bank demands lawyer’s fees as part of the settlement. Is that allowed?

The bank does not collect or demand lawyer’s fees and legal costs in connection with legal proceedings unless a court has awarded them, and only in the amount awarded (section 32 of Directive 450). At the Execution Office, unless otherwise decided, it may charge the minimum lawyer’s fees (section 33). Lawyer’s fees included in a settlement agreement must appear in the settlement itself, before you sign (section 34).

I signed a settlement with the bank. Do the enforcement proceedings continue?

The bank notifies the Execution Office of the settlement, and the proceedings in the file are stayed as long as the bank has not given notice that you breached it (section 26 of Directive 450). Keep proof of every payment: the bank reports to the Execution Office, within seven days, payments it received directly (section 25).

I cannot pay the debt. What are the options?

At the Execution Office: an application for a payment order according to your ability, within 20 days of service of the official warning (section 7A of the Execution Law), and an application to consolidate all the files (section 74B). When the debts are larger than what you can pay over time, you can apply for an order to open insolvency proceedings (section 102 of the Insolvency and Economic Rehabilitation Law).

Where do you complain about a bank that does not follow the Directive?

First, in writing to the bank itself. After that you can apply to the Supervisor of Banks at the Bank of Israel, who looks into inquiries from the public about their dealings with banking corporations (section 16(a) of the Banking (Service to Customer) Law). Applying to the Supervisor does not extend a deadline set in legislation (section 16(d)(2)).