Bill proposes debt-collection cut off after 3 years

In January, Shaked proposed an overhaul of the bankruptcy system for both individual and corporate debtors.

By
May 15, 2016 19:26
2 minute read.
money

Shekel money bills. (photo credit: REUTERS)

 
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Continuing a trend to make debt collection both more efficient and more humane, Justice Minister Ayelet Shaked on Sunday proposed a bill to set a definite three-year deadline for government agencies to engage in debt collection.

The Attorney-General’s Office had issued guidelines in recent years to get agencies to comply with the three-year deadline, but passing a clear law on the issue will make the deadline clear and mandatory, said Shaked.

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She explained that the bill will end the absurd scenario where national or local government agencies wait up to seven years after obtaining a judgment and collection order to collect a debt, at which time the debtor-citizen no longer remembers the details of the issue.

This means the debtor often cannot defend himself in case the agency is mistaken and the issue may be sprung on him at a more vulnerable time when he thought the issue was long since resolved.

Further, some agencies have practiced “passive debt collection” in which they wait until a citizen needs some critical service and then pounce on him to collect before granting the otherwise standard service.

However, the bill is not only about canceling debt.

A three-year deadline instead of seven will also encourage agencies to move faster to collect on debts due them, which may raise the collection rate and increase state revenue.

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Also, if the state moves faster to collect, it may still offer citizens a chance to pay over an extended period, but with the debtor having full awareness of what he owes, avoiding a sudden crisis.

Finally, the legislation will clarify that the three years applies in all cases, to clear up confusion regarding a separate rule that says that certain court rulings can be enforced for 25 years.

The bill is consistent with a trend of bills during and even before Shaked’s tenure aimed at modernizing and improving the standing of debtors in Israeli society in light of socioeconomic changes and analyses of the failures of the current system.

In January, Shaked proposed an overhaul of the bankruptcy system for both individual and corporate debtors.

The overhaul aimed to remove the stigma of filing for bankruptcy so that debtors do not sit indefinitely in limbo in the collection system for debts that they have no hope of paying.

It also was directed at helping individual and corporate debtors to turn over a new leaf or even salvage profitable aspects of corporate operations, while dividing a debtor’s assets more equally among different categories of creditors than in the past.

Earlier related reforms lowered the fees for poor persons to access the court system to defend their rights.

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