Debtor Inherits Apartment: How He Managed to Keep It
During insolvency proceedings, a debtor inherited a share of an apartment that was at risk of forfeiture. Through a court-approved creditors' arrangement, he successfully redeemed his rights to the property.
The Magistrate's Court in Jerusalem recently approved a creditors' arrangement for a 63-year-old insolvent individual, allowing him to redeem his rights to an inherited apartment and retain the property. The trustee had petitioned to condition the approval on receiving updates from the debtor regarding the settlement of the mortgage, but Judge David Shaul Gabai Richter rejected the request.
The insolvency proceedings began in July 2022 due to debts totaling approximately 500,000 shekels. The court had initially ordered the debtor to contribute 25,500 shekels to the creditors' fund over three years to receive a discharge. However, in late 2024, the debtor’s brother passed away without children or living parents, leaving his apartment to his three brothers.
Under the existing financial rehabilitation plan, any assets acquired during the repayment period were subject to forfeiture. Represented by attorney Yosef Ozana, the debtor proposed a creditors' arrangement to redeem his rights in the inherited apartment by increasing the total contribution to the creditors' fund to 110,000 shekels. Following an improved proposal, the court ordered a creditors' meeting.
The results were overwhelmingly in favor of the debtor: creditors holding 40% of the voting power supported the proposal, and another 40% left the decision to the court's discretion. Only creditors holding 20% of the voting power opposed the arrangement.
The trustee, attorney Amir Kaspi, sought to condition the approval on the debtor providing updates if the mortgage on the inherited property were settled by an insurer or if the insurance company "Menora" paid financial compensation to the heirs in lieu of mortgage settlement. Judge Gabai Richter rejected the trustee’s attempt to claim potential mortgage insurance proceeds.
"Considering the existence of a majority in number and value, I approve the creditors' arrangement proposal. Given the relatively high dividend rate, I believed there was no place to condition the arrangement as the trustee requested," the judge wrote.
A subsequent request by the trustee to reconsider the verdict was denied. The debtor's attorney stated: "A creditors' arrangement is the best process when a debtor has assets and inheritances. The court continues to reject the positions of officeholders, providing a path to keep inherited assets, conclude the process, and allow creditors to receive a proportional share of the debt."
