Erasure of debts in Israel from abroad

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Debt agreement: The sun is shining, the birds chirp and bank account is foreclosed. Many people and companies from all corners of the economy may find themselves one bright morning in financial distress or severe budget problems. 

Such problems create a growing “snowball”, in which debts get accumulated as the financial distress worsens, to the extent that the debtors have no choice but to turn to the courts and execution office in order to collect their debt.

These appeals have strict restrictions on debtors and execute the appropriate sanctions, which are anchored in law, against them, including foreclosure of the bank account and various assets, orders of prohibition from leaving the country, “black stamp” in the Bank of Israel, restriction of the possibility of taking loans or mortgages for the distant future and negative image among credit and insurance companies or entities and other people.


Proof of repayment: the debtors’ “weapon”

Every debtor who is caught up in a deep “financial hole”, faces four options: Consolidation of cases, means limited debtor, bankruptcy or reaching a debt agreement.

A debt agreement is essentially based on a process, on which there is an agreement of both sides:

The debtor and the side to whom the debtor owes money (the creditor). This agreement is made by formulating a contract, in which the existing debt rate is usually reduced and it is conducted outside the court, in the same manner as plea bargains between the defendant and the police prosecutions get settled. In contrast to insolvency, in which a situation arises where the debts and obligations exceed the ability of repayment using money and realization of assets, the debt arrangement still gives the debtor the option to use the least he can give as a “weapon” to reach agreements, and in most cases, even if the creditor refuses the agreement, the court is prone to rule that the agreement must be imposed on him in any case.

A debt agreement is carried out in negotiations with the bank in order to find an immediate solution to the accumulated debt. The more the debtor demonstrates the ability to repay a bigger portion of his debt, the lower the actual debt rate will be. This is why debt agreements are considered to be cheaper and more efficient than other options, and because it is based on bargaining with creditors and does not require special expenses.

The debtor should strive to receive a benefit such as cash discount, payments spread, reduced interest rate, etc. Proper negotiations will allow the bank to come to the debtor’s aid and create a situation of reducing the debt rate, with the option of debt erasure, facing what will be paid already within the framework of the agreement.


Debt agreement – who does it suit?

The process of a debt agreement suits private individuals as well as companies and corporations, where the management of the process can prevent a more severe financial deterioration that will require the court and execution office to intervene.

These people are usually driven by sloppy financial behavior and tend to extravagant or uncalculated lifestyle, although in special cases, this is due to sudden and unexpected life circumstances that endanger the person or society and put him in this situation.

The collection process from debtors happens gradually and methodically: People, who for various reasons fail to meet their financial obligations, will receive a warning from the creditor or his representative before acting with the legal means available to them.

Therefore, upon receiving the warning, it is possible to contact the creditor and work towards debt agreement in the most efficient manner. The agreement options will reflect the extent of the damage and the need for a professional lawyer who will serve as the professional mediator at the next stage of the agreements.

If the debtor does not contact the creditor and settle the matter upon receiving the warning, his debt will increase due to the creditor’s efforts to collect the debt (filing a claim, opening collection proceedings through the execution office, etc.). When a case gets opened at the execution office, the debtor will receive a warning before any collection proceedings are taken against him in various ways, which will be reflected in foreclosures and records that will accumulate against him from that moment onward.

Therefore, he will have to attend an investigation where his repayment ability will be examined, and in many cases it gets concluded by spreading payments, which makes it easier for him.

The ability to reach a debt agreement with the creditors is arbitrary and possible at each of the stages, when the lawyers of both sides meet in order to reach agreements and obviate the need of the creditor for collection proceedings. The sooner the agreement attempts begin, the heavier the damage it will prevent, although it is possible to carry out a debt agreement even at later stages.


Debt agreements in companies and corporations

If the debtor is a particular company that is in debt in favor of another company, it is possible to agree that the creditors will receive a certain portion of the share capital in return for the erasure of the relative portion of the debt or the entire debt.

This so-called “debt-to-equity swap” deal occurs in large corporations where the financial distress is expressed in the way when the company’s debts exceed the value of its assets (just as it occurs in a situation of insolvency), and so, in fact, it won’t be able to repay its debt anyway.

The creditors, who understand that they will find it difficult to collect their debt, offer an alternative, in which they will “bite” a part of the company – which leads to the dilution of the original shareholders, sometimes to a state of total decline, as in the case of Eurocom or IDB of Nochi Dankner.

Another possibility for companies (and some private individuals) is to redeem bonds at a lower price than their real value. This action is usually taken in a situation where the bondholder understands that his repayment ability is very limited and is therefore willing to absorb a partial loss.

In the past, many economists suggested similar moves around the subprime crisis and the fall of the U.S. stock market in 2008, when the few who rushed to execute them through their lawyers, were saved from a real financial turmoil.


“Can they give me a haircut?”

Any person who is in financial difficulty is considered to be on the way to the “beginning of the end”, therefore, the legislative system in Israel allows him to restore his normal life by a series of long-term financial actions, as well as proper and responsible planning and thinking, including consistent and appropriate treatment of the problem from here on.

Until a few years ago, a parallel system of debt erasure, or in the public jargon: “haircut”, was employed. Tycoons and moguls from the upper echelons, who were caught in financial crises of tens of billions, in fact were not able to repay these huge sums, which led the state, as the main creditor, to understand that a large portion of the sum will never be returned to it and it “cut” the amount of payments well. Today, individuals can also use the haircut method.

People, who have taken many loans, mortgages or accumulated debts and fines, and are in very heavy debt, can conduct bank negotiations regarding their debt to create a convenient agreement and thus erase a significant part of the additional amount that has to be paid.

This is not a debt erasure, but a situation, in which the debtor is repaying the part, which he is able to repay, and for that he opens a “new page” without additional debts.


Have you received a foreclosure notification, legal summons, or a notification from the execution office? Contact us immediately!

Debtors wishing to reach a debt agreement must act very quickly – before the bank turns to legal proceedings. Our criminal lawyers are experienced experts in debt agreements.

Our firm is highly skilled and experienced in conducting negotiations with banking systems, entities and commercial companies, and we have many tools and skills to conduct negotiations in a dedicated, wise and relevant manner that will not worsen your financial situation and will serve your personal interests until the desired goal is achieved.



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*The above article is by no means a legal advice; any use of this information is solely under the reader’s responsibility.

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