Other Topics - Bankruptcy

Question:

Does a woman who has a court judgment against her husband awarding her maintenance have a hope of recovering a maintenance debt that has built up if he has been declared bankrupt ?

Answer:

The Bankruptcy Ordinance (New Version) of 1980 provides a mechanism for the family of someone declared bankrupt to recover maintenance from him . A distinction exists between debts for maintenance due before and after the receivership order was made. The Ordinance states that maintenance debts arising from a court judgment and which should have been paid before the order was made are ‘claimable’ in bankruptcy. The situation is different where the maintenance debt relates to sums due after the order was made and the debtor declared bankrupt. In principle these fall outside the list of permitted claims in bankruptcy. However, the Ordinance grants the court discretion to apportion family members sums of money it sees fit instead of the judgment, from the bankruptee’s property or income.

Question:

I have a court decision against my husband awarding my children and myself maintenance. However, he never paid . As part of bankruptcy proceedings a receivership order has now been made against him. Can I claim the maintenance debt, and if so, how ?

Answer:

A debt on maintenance due before a receivership order has been made is claimable, under the Bankruptcy Ordinance ( New Version) 1980, and receives a certain priority among debts claimed. A plea to get the maintenance debt paid should be made to the trustee in bankruptcy.

Question:

Should a maintenance plea be delayed because the person against whom it has been made is facing bankruptcy proceedings ?

Answer:

No, according to a Kfar Saba Family Court ruling in 2003 . It rejected a man’s claim that maintenance proceedings against him should be delayed pending the outcome of bankruptcy proceedings against him. He had not proved that he was actually bankrupt, and had not even claimed so at the first opportunity, as required. Even if he had done so, bankruptcy proceedings should not hold up the maintenance action, and there was no need to ask the district court dealing with the bankruptcy proceedings for permission to continue with the maintenance action, it held.

Question:

My husband is facing bankruptcy proceedings, but has not yet been declared bankrupt. However, he says he cannot personally pay me and the children the maintenance we have been awarded by a court judgment anymore because an order has now been made to draw in his property and income. Can I get maintenance from now on ?

Answer:

Probably – even if a debtor has yet to be declared bankrupt, if a receivership order has been made against him, as part of bankruptcy proceedings under the Bankruptcy Ordinance ( New Version ) 1980, then the court has discretion to award a certain sum instead of the maintenance set, as it sees fit, from the debtor’s property or income.

Question:

Is child maintenance payable to a custodial mother protected from creditors if she is declared bankrupt ?

Answer:

Yes ! According to the Bankruptcy Ordinance (New Version) 1980 , child maintenance will not be affected in this case and cannot be used to pay off creditors.

Question:

Is there any point in a man against whom maintenance has been set by court to apply for a reduction in the sum set because a receivership order has now been made against him as part of bankruptcy proceedings ?

Answer:

Probably not, according to a decision made by the Tel Aviv Family Court in November 2002 , although it did say that a father in this position could apply to the Official Receiver for permission to make the plea.

‘ There is no significance as to whether the debt remains at the sum set in the temporary maintenance decision or is reduced to a different sum. In any case the court dealing with the bankruptcy is the one to apportion a sum according to the income and property of the bankruptee. If he has sufficient income and earnings to pay the sum that was set then there is no point for downward changes. And if there is not sufficient income and earnings to pay the amount set then the court will set aside a lower sum anyway, ’ the court held.

Question:

Because of debts caused by my husband’s business partner who then fled the country, several banks are hunting us down. My husband had signed papers to guarantee the debts personally. The banks said that if my husband won’t pay up we could be forced to sell our home, which is in both our names, to cover the debt. This frightened me. Can they do this, and could we and our children be homeless?

Answer:

Yes, if the banks take legal action to recover the debt and the court gives a judgment ordering them to pay up, and they do not , then creditors are entitled to apply to the Chief Bailiff at the Execution Office for a freezing order on the home to guarantee the debt.

If the couple are still unable to pay 30 days after the order is granted , then process of selling the property to cover the debt will start.

The law contains provisions to protect debtors families from becoming homeless; the Chief Bailiff will not act to evict the family from the home unless he is satisfied that they will have “reasonable accommodation” or an “alternative arrangement” awaiting them. In practice, this means that they may be forced to sell to cover the debt, and have to buy a smaller property with what money is left over, or even rent one.

Question:

I am facing both bankruptcy and divorce proceedings. Due to the failure of my business I have become very impatient and aggressive. This has had a destructive effect on my marriage. My children have cut off contact with me and my wife only communicates to me through her lawyer. She filed me for a division of our marital property, and the court ordered our home to be sold. She also filed me for child maintenance and now demands more than half of the house to ‘guarantee’ that the children will have somewhere to live. The trustee who was nominated to take care of me in my bankruptcy is trying to get his hands on my part of the apartment. Is there any chance of me getting some money from the proceeds of the sale of the apartment to help me rebuild my life ?

Answer:

No ! Normally, when the family home is sold as part of a plea to divide marital property, each spouse gets half of the proceeds of the sale. However, where one of the parties faces bankruptcy proceedings his share is deposited with the trustee in order to help pay off debts to creditors. He may end up getting nothing or if he is lucky there will be something left over once the debtors are paid off and he will get that.

Furthermore, the 1969 Land Law entitles the court to digress from dividing the ownership equally. It can take into consideration the fact that the children need a roof over their heads and accordingly can order that the parent having custody of the children should receive a bigger part of the proceeds of the sale than the non-custodial parent.

In practice the husband facing bankruptcy proceedings or his trustee may end up with less than half of what he owns and he may even end up with nothing.

Question:

Is it possible for a wife to buy her husband’s part of their jointly-owned family home – within the framework of bankruptcy proceedings against him ?

Answer:

Yes. In proceedings between ex-spouses in August 2002 concerning a division of their marital property it was reported that the ex-wife had purchased her ex-husband’s share in their apartment - bought during their marriage and registered in their joint names – as part of bankruptcy proceedings against him.

Question:

My wife and I ran a newsagent’s and stationery shop for many years. The business was formally in my husband’s name. A couple of years ago the shop was closed because of heavy debts to suppliers. Bankruptcy proceedings were brought against me and I was eventually declared bankrupt. My marriage fell apart as a result of all this and I am in the process of divorcing. The apartment we own is due to be sold through a receiver and my wife is due to get half of the sale and my half is due to go to the bankruptcy trustee who will use it towards paying off my debts. I do not understand why only I should have to bear the burden of the debts, while my wife is “ let off the hook” . It seems both illogical and unfair that our success should be shared but that just I should bear the stigma of our failure. Can I take any legal action to make my wife share the burden of the debts ?

Answer:

Yes ! A business which was set up by a husband and wife during their marriage is joint property regardless of whether it was run by both of them or just one of them, and regardless of whether it was registered in joint names or not. Joint property in connection with a business means all rights relating to it, its property, equipment, stock, goodwill , money and all debts, to banks, authorities and suppliers.

Having said this the 1973 Spouses’ Property Relations’ Act refers to debts and states that one spouse is not responsible for the other’s personal debts, but business debts and debts resulting from joint aims/purposes are to be shared. Accordingly, if the debts were accumulated within the framework of a joint or family business, then there is room for arguing that they should be regarded as joint ‘negative’ property and a spouse who feels he is unjustifiably bearing the burden of them alone should consider filing a plea for the balancing of marital property under the act.

Question:

If a man is going through bankruptcy proceedings can the law oblige his cohabitee to cover debts acquired prior to their relationship ?

Answer:

No! Cohabitees are only liable for one another's debts relating to the period of their cohabitation. Debts during this period are joint debts, but there is no mutual responsibility for debts acquired prior to their cohabitation .

Question:

My father is in the wholesale trade. I work with him although the business is just his. He is in financial straits. He is owed money by several customers. He suggested getting postdated and blank cheques from them as a guarantee that they would pay up and giving the cheques to me “to be on the safe side.” Would the transfer of cheques to me from my father be valid later on if my father went bust ?

Answer:

The question deals with the law relating to business dealings/ transfer of rights/gifts made by someone who is later declared bankrupt. It is covered by the Bankruptcy Ordinance.

In relation to cheques given to guarantee a debt, reference to a Supreme Court case involving two brothers in the loan business is useful. One of them was declared bankrupt (after applying for this status himself). A few months later the other brother sued one of his bankrupt brother’s clients for a debt he owed – and had guaranteed by giving three blank cheques . The District Court held the transfer of cheques between the brothers was cancelled – hence the appeal by the non-bankrupt brother.

The Bankruptcy Ordinance regards the granting of existing or future rights deriving from a contract as an exception to the rule that these will be cancelled if the donor is subsequently declared bankrupt.

Rejecting the appeal, The Supreme Court said that the two brothers had run the business together and it was sufficient for the appellant to have known that his brother was in financial difficulties to eradicate the ‘good faith’ element. The appellant failed to bring evidence to show that the transfer of cheques was made in good faith, the court stressed.

To summarise, someone with knowledge of a donor’s financial problems who receives existing or future rights cannot rely on the defence of good faith if the latter is later declared bankrupt . The transfer will not be valid and can be cancelled. Thus, a son who receives cheques given to his father in the circumstances described above would probably not be able to rely on the ‘good faith’ defence to prevent the cancellation of the transfer. He would be very unlikely to succeed in proving that he did not know his father was in financial straits because of them being close family and working together.

Question:

My ex-husband brought legal action to try and cancel the transfer of property into my name following bankruptcy proceedings brought against him. As I managed to prove that when he transferred his share of the apartment to me several years before we divorced , my ex-husband was financially solvent , I won. He is now threatening to appeal and I will be forced to hire a lawyer to defend me. Will I have a chance of getting my legal costs paid by him if he loses the appeal ?

Answer:

Yes, if it is held that he was unjustified in appealing, given the particular circumstances of the case . In October 2003 the Supreme Court rejected an ex-husband’s appeal against a district court judgment refusing to cancel the transfer of his half-share of the couple’s apartment made eight years prior to their divorce .Although the transfer had been made less than 10 years before a receivership order had been made against the ex-husband, and was liable therefore to be cancelled, the ex-wife had managed to prove to the district court that he had been financially sound when he made the transfer. Thus, the district court refused to cancel the transfer. The Supreme Court held that the husband had been unjustified in appealing, given the circumstances of the case, and that, therefore, he should pay his ex-wife’s legal costs in defending the case. In view of the circumstances, it did not order any costs against the other respondent, the Official Receiver.