Individual insolvency: the ways to open proceedings, the interim period and the discharge

The term “bankruptcy” is still common in conversation, but legally it no longer describes the process. The Insolvency and Economic Rehabilitation Law, 5778-2018 replaced the Bankruptcy Ordinance (פקודת פשיטת הרגל) and the law on liquidation with a single law, and reshaped both the institutions that run it and the purpose for which it exists.

Section 1 states the purpose expressly, and in this order: to bring about, as far as possible, the economic rehabilitation of the debtor; to maximize the rate of the debt that will be repaid to the creditors; and to promote the reintegration of a debtor who is an individual into economic life. This is not procedural wording but a statement of policy by which the rest of the Law is interpreted.

What insolvency is: two alternative tests

The definition itself is broader than it seems, and it does not require the debt to have already fallen due:

Insolvency and Economic Rehabilitation Law, section 2 (unofficial translation)

Insolvency is an economic situation in which a debtor cannot pay its debts on time, whether or not they have fallen due, or in which the debtor’s liabilities, including its future and contingent liabilities, exceed the value of its assets.

Two alternative tests: a cash-flow test (inability to pay on time) and a balance-sheet test (liabilities above the value of the assets). One of them is enough. The phrase “including future and contingent liabilities” is what makes guarantees that have not yet been called part of the picture.

Who may open the process, and with whom

Section 102 sets three parties that may file an application for an order to open proceedings regarding an individual: the individual, a creditor, and the Attorney General.

When the individual opens the process, the application is filed with the Commissioner of Insolvency and Economic Rehabilitation Proceedings (section 104(a)), if two conditions are met: the individual is insolvent, or the order will help prevent their insolvency; and their total debts exceed NIS 176,923.12 (as of 1 January 2026). The amount in the Law, NIS 150,000, is updated on 1 January each year according to the change in the index (section 352), so it must be checked on the actual filing date.

With the application, the individual must attach, under section 104(b): an affidavit in the form set by the Minister; a detailed report covering the past two years (assets, income, expenses, debts and liabilities, bank accounts, security given, the identity of their creditors and of those who owe them money, lawsuits and collection proceedings, profession and education, and details of the assets of their spouse, minor children and adult children they support); and a waiver of confidentiality. Section 104(c) allows the individual to mark items of sensitive personal information that they ask not to be disclosed for the creditors’ inspection.

The timetable is fixed: under section 105(a), if the Commissioner finds that the conditions are met, they will give an order to open proceedings within 30 days of the date the application was filed. If the Commissioner asked for more information or called a hearing, the 30 days are counted from the date the information was received or from the end of the hearing (section 105(c)).

How to file, and what the application costs

The application and the report on your financial situation are filed on Form 5, verified by affidavit, with a waiver of confidentiality on Form 6. Filing is online. A person who is not represented may also file in person at the Commissioner’s offices in the district where they want the proceeding to be conducted, and in the low-debt track, at the Execution Office where an insolvency track operates. In an application to the Commissioner, the district is the one where you live, or where your main business or your assets are located; in the low-debt track, as a rule, the district where most of the enforcement files against you were opened.

The state fee in 2026: NIS 1,616 for an individual’s application, to the Commissioner or to the Execution Registrar. A person who is not represented by Legal Aid and does not meet the eligibility tests for Legal Aid pays NIS 900 on filing, and the balance is paid from the insolvency estate. A person represented by Legal Aid on grounds of inability to pay, or who meets its tests, pays nothing on filing, and the fee is paid from the estate to the extent there is money in it. If you withdraw the application before the order is given (with the Execution Registrar: before the Registrar ordered a meeting to be called to work out a payment arrangement), half of the fee you paid is refunded.

After the order, a notice about it is published, and a creditor may inspect the application and the report, except for details you marked as sensitive personal information. A person who considers themselves harmed by the order may ask the court to cancel it within 45 days of the notice’s publication.

The low-debt track

The Law created a separate track for an individual whose total debts do not exceed the same threshold: NIS 176,923.12, as of 1 January 2026 (section 186). This track is conducted before the Execution Registrar and not before the Commissioner, and section 202 gives the Registrar the Commissioner’s powers, except for the power to set general rules and guidelines, the power to be a party to court proceedings, the power regarding an individual who has died, and the power to investigate the conduct of a trustee.

The process in this track is opened in one of two ways under section 187(a): filing a notice with the Execution Registrar that the individual is unable to pay the judgment debt under section 7A2 of the Execution Law, 5727-1967 (חוק ההוצאה לפועל, התשכ״ז-1967), a notice that is treated as an application for an order to open proceedings; or filing an application directly with the Registrar, provided that the total debts exceed NIS 58,974.37 (as of 1 January 2026) (notice in Yalkut HaPirsumim (official notices gazette) 14278, 19 February 2026, page 4144, in force from 1 January 2026). Section 187(b) allows the Registrar to give an order even below this amount, for special reasons, including when proceedings under the Taxes Ordinance (Collection) (פקודת המסים (גבייה)) are being conducted against the individual.

A meeting to work out a payment arrangement

In this track, before an order to open proceedings, an attempt is made to reach an arrangement. A dedicated registrar examines the application, and if the conditions are met, orders within 30 days a meeting to work out a payment arrangement, which takes place within a further 30 days, run by the Registrar’s representative. You must attend and cooperate. An arrangement agreed by you and by all the creditors who are party to it is binding, and the Registrar suspends or closes the files in enforcement proceedings (Execution Office) that it covers. When not everyone agrees, the arrangement can go to a creditors’ meeting: it needs a majority of those voting among the creditors in enforcement proceedings who together hold at least three quarters of the debts in enforcement proceedings in the arrangement, and all the creditors in the arrangement whose debts are not in enforcement proceedings, and then the Registrar’s approval. If no arrangement is reached, the Registrar gives an order to open proceedings.

The Registrar may decide not to appoint a trustee and to perform the trustee’s role, and transfers the proceeding to the Commissioner if it turns out that the debts significantly exceed NIS 176,923.12. What to do when a warning has arrived and no decision on insolvency has been made yet: you received a warning from the Execution Office.

A creditor wants to open proceedings against you

A creditor may ask the court for an order to open proceedings against you if you are in insolvency. To prove this, it can rely on the presumptions in the Law, for example (2026 amounts):

• a demand for payment in the prescribed form, for a debt of more than NIS 88,461.56, that was not paid within 45 days, when there is no dispute in good faith about the debt and the application was filed within three months of the demand;
• a warning in enforcement proceedings, or a demand for payment under the Taxes Ordinance (Collection), for such a debt that was not paid within the set time;
• a judgment for more than NIS 88,461.56 that was not complied with within 30 days of its service (or of the date set in it, whichever is later), or a judgment of the Labor Court for more than NIS 11,794.87.

The presumption can be rebutted: if you prove that the non-payment does not result from insolvency, it falls away. A person who may be harmed may object to the application, and the court may dismiss it if the order itself would harm your economic rehabilitation. If an order is given at a creditor’s request, you file with the trustee, within 21 days, a report on your financial situation in the preceding two years. Until the decision, the court may grant interim relief, including a freeze of proceedings. In an inquiry about such a matter, the first question is who the creditors are, in order to check for a conflict of interest.

What happens the moment the order is given

Section 121(a) gathers the consequences, and they are immediate: the assets of the insolvency estate will be used only to repay past debts and the costs of the proceeding; past debts will be repaid only under the Law, and in the order of priority in section 231 (see the order of debt repayment); the proceedings against the individual are frozen, and if restrictions were imposed on them in collection proceedings, the restrictions are void; no imprisonment order will be given for imprisonment in place of a fine; the Commissioner will appoint a trustee; and an interim period begins, lasting until an economic rehabilitation order is given.

Section 121(b) adds a qualification: the order does not exempt the individual from the duty to comply with any provision under law, including an administrative decision, except a duty to pay a past debt. In other words, the freeze is aimed at debts, not at compliance.

What exactly stops (attachments, files in enforcement proceedings, lawsuits) and what continues, such as criminal proceedings, a mortgage and guarantors: Stay of proceedings in insolvency: what stops and what continues. The creditors file debt claims with the trustee within six months of the order’s publication, and with the order the Commissioner sets the living allowance that you will keep from your income in the interim period.

The restrictions in the interim period

Section 142 lists the restrictions that apply from the order until an economic rehabilitation order is given: a restriction on receiving or holding an Israeli passport or travel document and on extending their validity (provided that they will be valid for returning to Israel); a stay of exit from Israel; a restriction as a specially restricted customer under the Cheques Without Cover Law, 5741-1981 (חוק שיקים ללא כיסוי, התשמ״א-1981); a restriction on using a payment card, except a card that can be used only against a credit balance; and a restriction on setting up, or taking part in setting up, a new corporation. This last one applies only if the trustee finds a risk of harm to the creditors or to a third party.

In addition, section 123 prohibits the individual from entering into a transaction or taking an action that involves receiving credit, from the date of the order until the end of the proceedings, except with the Commissioner’s approval. Section 123(b) requires the Commissioner to set rules on expenses needed for living, for which no individual approval is needed.

This is the point where many individuals are surprised: the restrictions are not a punishment but a tool for protecting the insolvency estate, yet in practice they change everyday life, from booking a flight to opening a new business.

The timetable: from the application to the discharge

The table describes the deadlines in the Law. In practice, in economic rehabilitation orders given in 2024 the average payment period was 52 months, and in 7,028 of 8,198 orders it was longer than three years.

Monthly payment and reports

The monthly payment is set according to your earning capacity minus the living allowance for you and those you support. In the interim period the Commissioner sets it, and in the economic rehabilitation order the court does, or the Registrar in the low-debt track. The regulations that the Law requires to be made for calculating the living allowance have not been made (according to the State Comptroller’s report of November 2024, as of September 2023), and according to the Commissioner’s annual report for 2024, the monthly payment is set under a criteria procedure that the Commissioner first published in May 2020. In proceedings opened with the Commissioner in 2024 at debtors’ request, the average payment was NIS 1,608 and the median NIS 1,480: an average, not a forecast. How the amount is set and how to change it: the monthly payment in insolvency.

From the examination to the economic rehabilitation order

In the interim period, the trustee examines the individual’s financial situation and the circumstances that led to it (section 121(a)(6)(b)). On receiving the report of the examination’s findings, the Commissioner submits to the court, within 60 days, a proposed plan for the individual’s economic rehabilitation (section 154(a)). The proposal includes the findings, whether the conditions for a duty to make payments or for an immediate discharge are met, and whether the conditions for extending or shortening the payment period are met. The Commissioner gives the proposal to the individual and makes it available for the creditors’ inspection.

After a hearing, the court gives an economic rehabilitation order (section 161). In the order it sets, among other things: the duty to make payments (their amount and period) or, if the conditions are met, an immediate discharge; the assets that will be included in the insolvency estate; how they will be realized; which restrictions will continue to apply and for how long; training in sound financial conduct, if the circumstances indicate that it will help rehabilitation; and which debts the discharge will not apply to.

Immediate discharge

Section 167(a) sets a clear rule: the court will not impose a duty to make payments on an individual whose earning capacity does not exceed the living allowance, and will give them an immediate discharge. In 2024, 3,948 proceedings ended in a discharge, and in about 1,673 of them it was an immediate discharge.

Section 167(b) adds a qualification: an immediate discharge will not be given to an individual who meets one of the conditions on which the payment period can be extended, except in special circumstances. And section 167(c) allows the court to order that assets that will vest in the individual during a period of up to three years from the order will be included in the insolvency estate, and in exceptional circumstances, for a longer period for certain assets.

The discharge, and what remains outside it

At the end of the payment period, or when the order is given if an immediate discharge was granted, the individual, and only the individual, is released from past debts that could not be repaid from the assets of the insolvency estate (section 174(a)). The words “and only the individual” make clear that the discharge does not extend to guarantors or to joint debtors.

Section 175(a) excludes three types of debt from the discharge: a punitive payment; a debt created by fraud, or resulting from a theft offense or from a sex offense or serious violent offense as defined in the Rights of Victims of Crime Law, 5761-2001 (חוק זכויות נפגעי עבירה, התשס״א-2001); and a maintenance debt where the liability for it is under a judgment.

Section 175(b) allows the court, in exceptional circumstances and even subject to conditions, to apply the discharge to interest and fines for late payment of a punitive payment, and to a maintenance debt under a judgment. Section 175(c) allows the opposite: to exclude from the discharge a debt arising from a duty to pay compensation under section 77 of the Penal Law, 5737-1977, in view of the nature of the offense, its seriousness or its circumstances.

Section 174(b) makes clear that the discharge does not detract from the trustee’s powers over the assets of the insolvency estate and does not release the individual from the duty to cooperate with the trustee and to comply with the conditions of the order that apply even after the discharge. Section 174(c) requires the Commissioner to give the individual confirmation that the discharge was granted.

The discharge does not necessarily come at the end of three years. When the court gives an immediate discharge, it takes effect when the economic rehabilitation order is given. In every other case it takes effect at the end of the payment period set in the order, which is as a rule three years, and the court may set a longer period or extend it, among other cases when the individual did not cooperate, breached the restrictions, created a debt in a significant transaction when they knew, or should have known, that there was a high chance they would not meet it, preferred a creditor or hid assets, or received an order to open proceedings in the preceding seven years. If the Commissioner asked to change the order because its conditions were not met, the payment period is extended until the court decides. The court may also cancel a discharge that was granted, if new facts came to light or the individual breached a material condition of the order. The “discharge track” of the Execution Law, which is still mentioned in old sources, applies only to those who filed an application by 6 September 2019.

The apartment, savings and belongings: what you keep

Basic belongings and assets. The following, among others, are not included in the insolvency estate: food, clothing, beds, medical equipment and medicines, kitchen and household utensils, religious articles, work tools and a vehicle without which there is no livelihood (up to an amount set by the Minister), equipment of a person with a disability, pets, a personal computer, a television, a telephone and a washing machine (up to an amount set by the Minister), and items of special sentimental value with a total value of up to NIS 4,689.87 (2026 amount).

National Insurance Institute (Bituach Leumi) benefits. The right to a benefit does not pass to the trustee, and a cash benefit is not subject to attachment, including in a bank account, for 30 days from the day it was paid, except for the payment of maintenance.

Provident funds and pension savings. Withdrawing money due to you from a provident fund requires the court’s approval, and money intended for a pension whose payment date has not yet arrived is not withdrawn.

The residential apartment. An apartment in the estate is sold only with the court’s approval, after a hearing, and only if the benefit to the creditors outweighs the harm to you (taking age and health into account), there is no less harmful way, and you and the family members living with you will have a reasonable place to live in the area or an alternative arrangement. When the court is convinced that you will be able to finance housing after the proceeding, the alternative arrangement is, as a rule, for four years; when it is not, for a period it will set, up to a lifetime. A mortgage is a different matter: this protection does not apply to the realization of a mortgage, where the rules for a secured creditor apply.

Before filing: what decides the outcome

• The report under section 104(b)(2) is the core. It covers the past two years and also includes the assets of a spouse and of children the individual supports. A partial report lengthens the proceeding more than anything else.
• Security you have given is part of the picture. The definition of insolvency in section 2 expressly lists future and contingent liabilities.
• Mark in advance the items of sensitive personal information that you do not want disclosed for the creditors’ inspection. Section 104(c) allows this, but you have to do it yourself.
• Check the debt threshold on the filing date. It decides whether the proceeding is conducted before the Commissioner or before the Execution Registrar, and the whole procedure follows from that. As of 1 January 2026 the amounts are NIS 176,923.12 and NIS 58,974.37, and they are updated on 1 January each year (section 352).
• A maintenance debt under a judgment, a punitive payment and a debt created by fraud cannot be discharged under section 175(a). A proceeding opened in the expectation that they will be erased will end in disappointment.
• The order cancels restrictions imposed in collection proceedings (section 121(a)(3)), but imposes the restrictions of section 142 in their place. This is a replacement, not a cancellation.
• Payments you made to a particular creditor in the three months before the application (to a relative, in the year before it) may be canceled as a “preference of creditors”; a payment of up to NIS 5,897.43 (2026 amount) to a person who is not a relative, and a payment of maintenance under a judgment, are not canceled for this reason.
• From the day of the order you may not receive credit without the Commissioner’s approval, except for living expenses for which the Commissioner has set rules, and in the interim period there are restrictions on your passport, leaving Israel and your payment card.

Frequently asked questions

What is insolvency under the law?

Section 2 of the Insolvency and Economic Rehabilitation Law sets two alternative tests: a situation in which the debtor cannot pay its debts on time, whether or not they have fallen due, or a situation in which its liabilities, including future and contingent liabilities, exceed the value of its assets.

To whom does an individual file an application to open insolvency proceedings?

Under section 104, an individual files the application with the Commissioner of Insolvency and Economic Rehabilitation Proceedings. For an individual with debts of a low amount, the proceeding is conducted under sections 186 and 187 before the Execution Registrar. Under section 102, a creditor and the Attorney General may also file an application.

What restrictions apply to an individual in insolvency proceedings?

Section 142 lists five restrictions in the interim period: a restriction concerning a passport or travel document, a stay of exit from Israel, a restriction as a specially restricted customer under the Cheques Without Cover Law, a restriction on using a payment card except a card that works against a credit balance, and a restriction on setting up a new corporation, subject to conditions. In addition, section 123 prohibits taking credit without the Commissioner’s approval.

Which debts are not erased by a discharge?

Section 175(a) provides that the discharge does not apply to a punitive payment, to a debt created by fraud or resulting from a theft offense or from a sex offense or serious violent offense as defined in the Rights of Victims of Crime Law, or to a maintenance debt where the liability for it is under a judgment. In exceptional circumstances, the court may apply the discharge to some of these under section 175(b).

What is an immediate discharge?

Under section 167(a), the court will not impose a duty to make payments on an individual whose earning capacity does not exceed the living allowance, and will give them an immediate discharge. Such a discharge will not be given to an individual who meets one of the conditions for extending the payment period, except in special circumstances that justify it.

Stay of proceedings in insolvency: what stops when the order is given?

When an order to open proceedings is given, the proceedings against the individual are frozen (section 121(a)(3)): collection proceedings for past debts cannot be opened, and proceedings that have not yet been completed cannot be continued, and no attachment can be imposed on an asset of the insolvency estate (section 29, which applies with the necessary changes); restrictions imposed in collection proceedings are void. The freeze does not apply to criminal and administrative proceedings, except collection proceedings (section 31(a)). Already from the filing of the application, when a proceeding against the individual is pending in another court or in the Labor Court, the individual or a creditor may ask for it to be stayed until the decision on the application (section 120(a)).

How much does it cost to file an insolvency application?

In 2026 the state fee for an individual’s application is NIS 1,616. A person who is not eligible for Legal Aid pays NIS 900 on filing, and the balance is paid from the insolvency estate; a person who is eligible for Legal Aid pays nothing on filing.

How long do insolvency proceedings take until the discharge?

The Law sets up to nine months for the trustee’s report (the Commissioner may extend this), 60 days for the Commissioner’s proposal, and a payment period of three years as a rule, which can be extended. In orders given in 2024, the average period was 52 months.

Do they take your apartment in insolvency?

A residential apartment in the insolvency estate is sold only with the court’s approval, after a hearing, and on condition that you will have a reasonable place to live or an alternative arrangement. This protection does not apply to the realization of a mortgage.

Can a creditor open insolvency proceedings against me?

Yes, if you are in insolvency. The Law gives the creditor presumptions, for example a judgment of more than NIS 88,461.56 (2026 amount) that was not complied with within 30 days, and you may rebut them and object.