Trustee petitioned to cancel insolvency. Judge: "You exceeded your authority"

The Jerusalem Magistrate's Court recently ruled that a trustee in the insolvency proceedings of a mother of four, who is mired in 1.3 million shekels of debt, exceeded his authority when he conducted an in-depth investigation into the circumstances of her debts without court approval and requested to cancel the proceedings. Judge David Shaul Gabai Richter set a rehabilitation plan for the woman that entails repaying only about 5.5% of her debts, spread over six years.

The case involves a dental assistant who fell into massive debt to credit card companies "Cal" and "Isracard," leading to the opening of insolvency proceedings. However, the trustee in the case, Adv. Ofek Eini, was of the opinion that the proceedings should be canceled due to the debts being created in bad faith. According to him, he checked and found that when submitting her application for credit cards, the woman provided false statements regarding her education, income level, and the existence of an apartment without a mortgage.

On the other hand, the debtor, through Adv. Zeev Perl, argued that the trustee exceeded his authority when he decided that her debts were created in bad faith. According to her, even on the merits, a lack of good faith on her part was not proven. In her view, she complied with everything required of her and is therefore entitled to a discharge given her dire economic situation. She stated that her debts were created mainly by her husband, without her knowledge, as he was the one who managed the family's financial affairs.

The Commissioner, represented by Adv. Bat-El Edri Ashush, joined in an exceptional move with the debtor's position that there is no place for canceling the proceedings and that the trustee exceeded his authority. He proposed setting an economic rehabilitation plan for the debtor, for a payment of about 123,000 shekels spread over six years.

Judge Gabai Richter accepted the debtor's argument regarding the trustee's overreach. He quoted the relevant section of the law that allows the officeholder only to "examine" a debt claim and decide whether to approve or reject it. Only with court approval is he authorized to reject a debt claim based on a court judgment if he finds, among other things, fraud or collusion by the litigants.

"The trustee can approve a debt claim or reject it, that and no more. Exceeding this is only in cases where it concerns a debt claim based on a court judgment, regarding which the trustee has suspicions about the validity of the ruling," the decision stated.

Indeed, the judge noted, the law allows for an in-depth investigation in a case where a court judgment was given and there is a suspicion regarding the validity of the circumstances, but according to him, "this is not the case before us, and therefore the trustee had no authority to act as he did." Alongside this, he determined that the circumstances of creating the debts to the credit companies are "in bad faith and at the very least significantly negligent," and rejected the debtor's claim that she did not know about them because her husband was the sole person in charge of the family's finances.

Against this background, it was determined that while there is no place for canceling the proceedings as requested by the trustee, it is justified to extend the economic rehabilitation period beyond the default in the law, which stands at three years. As a result, it was determined that as a condition for receiving a discharge, the debtor will pay 1,000 shekels per month for six years, and in total will transfer 72,000 shekels to the creditors' fund – a sum that constitutes only about 5.5% of her total debts. In conclusion, the judge determined, at the trustee's request, that the debtor will also participate in training for proper financial conduct.