8 Things to Know When Going into Debt
1. Understand the full debt picture
There is a difference between a debt of NIS 20,000 and a debt of NIS 200,000 or a debt of NIS 600,000. Even if we now have foreclosure because of a NIS 20,000 debt, which is very urgent for us to solve, to understand whether this is all the debt that needs to be dealt with and then solved and we solved all the problems, or we have debts of another NIS 400,000 or NIS 500,000, and then it would be a shame to invest the efforts and money in dealing with the small debt, when in fact we didn’t solve the problem and only put out a fire and more fires will follow.
2. Do not give in to pressures
Once we get into debt, once we realize we’re in a state of insolvency, a situation where we can’t pay all our debts. We will be exposed to many, many pressures. Calls from the bank, letters from lawyers, notices from the execution office, foreclosures, and they will all put pressure on us to pay as quickly as possible here and now and as much money as possible. Very, very important. If I understood that I was already in a state of insolvency, then there is no difference whether my debt is NIS 400,000 or NIS 450,000. Either way, I’ll end up bankrupt. It’s better to stop everything, keep the money I have because I need it, fund a creditors’ settlement, pay a lawyer, cover the expenses of my ongoing living. It’s better to stop everything and not pay anyone until I do it, unless I’m doing it as part of a comprehensive arrangement that solves all problems across the board.
3. Do not fall behind on mortgage, alimony, current bills and taxes
A mortgage, as we said in the creditors’ arrangements video, the mortgage bank is basically, it has a proprietary right in the house. If I fall behind on mortgage payments, it will be relatively much easier for the mortgage bank to evict me from the house and sell the house than to any other creditor. As long as I meet the mortgage payments, it will be very, very difficult to evict us from the house, and the creditors know that. Therefore, it is better to pay the mortgage payments as rent. We don’t want to be evicted from our home, mortgage payments protect our home. Current accounts. Of course, I don’t want them to cut off my electricity and not hang up my phone, it’s better to keep paying. It is also forbidden in any case in bankruptcy proceedings to accumulate additional debts. Therefore, it is better to continue paying the monthly payments.
Not so, by the way, for past debts. If I have a debt from 3 years ago to a cellular company, there is no reason to pay it because this debt is included in the bankruptcy process. But the ongoing payments of each month, yes to pay. Foods. Alimony debt is a debt that is not included in a bankruptcy proceeding, in fact the discharge does not apply to it. First of all, it matters. Alimony is money that goes to my children, I have to pay it, it’s their livelihood and that’s also what the legislature says. Precisely for this reason, the legislature determined that a debt of alimony would not be included in a bankruptcy proceeding and would not be discharged. This debt will actually be waiting for us, even if we get rid of all the other debts, the alimony debt will be waiting for us in the corner… At the end of the process, we’ll have to pay it anyway. It is better not to accumulate new debts, it will only fail us later on. and taxes. This of course refers mainly to deduction obligations, VAT, income tax, National Insurance. For… This rule is especially relevant for the self-employed. If you fall behind on deduction debt, deduction debt is money you received to transfer to the tax authority. If you collected VAT from a customer and did not transfer it to the tax authorities, it is a criminal offense. We don’t want there to be a criminal offense beyond all the trouble, so the tax debts should continue to be paid.
4. Do not get involved with the gray market
There is no reason in the world to take loans from a grey market. Interest rates are murderous, the means of collection are unpleasant. Even if not everyone is violent, they necessarily know, these are people who inevitably know how to make your life difficult. It’s a shame to get involved with this. Again, it doesn’t solve any problem either, it just creates a new problem. It is better to use the sources we have.
5. Under no circumstances should you leave your home
Our house is the most valuable asset we usually have. As long as I’m sitting inside the house for the ordinary creditors, as opposed to the mortgage bank, it will be very, very difficult to get me out of the house. And creditors know it. Therefore, creditors will often prefer to receive some amount of money on account of the debt, even if not all of the debt, and not start entering into eviction proceedings and realization of a home, because everyone knows that this is a complex procedure. Bottom line, very few evictions. A few dozen evictions happen a year in the State of Israel, and not for nothing. That’s why we always-always prefer to have a home.
I had a case of a woman who signed bail for her son. She owed NIS 350,000 to one of the banks, and one evening they came to her house, picked up her car on Lyft, and told her: “Either you pay NIS 50,000 now, or we take the car.” The woman, an honest and innocent woman, said to the creditors, to the collectors of the execution office: “Wait a minute. I sold the house to pay off the debts. Leave me the car. In another week, money will come from the buyer and I will be able to pay the debt.” The car, of course, was taken. And the next morning, the buyer was already foreclosed on the funds due to her. That is, she did not receive the funds of the house. In the end, with a lot of effort, we managed to save 30,000 shekels so that she would have rent for the following year. But of course, if she had applied earlier, it would have been possible to reach a much more convenient arrangement with the bank. But once she sold the apartment and gave up her rights to this apartment, then she no longer has a right to a residential apartment, but has a financial right and the money is much easier to seize.
6. Share the problem with your relatives
Very, very hard to hide. When creditors and letters start coming and knocking on the door, everyone knows about it. Beyond that, you need their help and they need to know the full picture. Don’t come to your parents and tell them, “I have a debt of NIS 20,000,” when the real debt is NIS 400,000. Share with parents, share with relatives, siblings. You don’t want to end up in a situation where you’ve already taken all their savings from your parents, uncles and siblings and whoever you can, and haven’t really solved the problem. Share the full problem with them, let them help you but thoroughly.
7. Be transparent and honest with creditors
Very important. The basic condition for any bankruptcy or creditors’ settlement proceeding is good faith. If you acted in bad faith, if you smuggled assets, if… You deceived the creditors in some way, you may not enter bankruptcy proceedings, and beyond that, if you told your creditors: “Tomorrow the money will come, another week the money will come”, when in fact you are unable to pay, you are just putting yourself under pressure and it is a shame. It’s better to tell creditors: “I can’t pay right now. I am currently trying to formulate an arrangement, I have sought advice, I will come to you in a month with a proposal for a settlement.” Buy yourself this time, buy yourself the peace, usually the creditors appreciate it and will also give you this time. You have to notice that there is a difference between integrity and transparency and being too naïve, sometimes.
The woman who said she sold the house took the matter of integrity and transparency a little too far, and made a mistake that ultimately cost her dearly. Therefore, in this aspect as well, it is important to consult.
8. Seek legal advice as soon as possible
As in medicine. If you have a medical condition, you want to go to the doctor with her when she’s still little, not when she’s big. Here, too. There is no reason to go to a lawyer only after they have already placed a lien on your salary, when they have already come to your home, when they have already taken away your savings, costs, time here works to your detriment, and mistakes here cost a lot of money. It is very important to consult with a professional, with a lawyer who understands the field, as soon as possible. How do we choose a professional? How much should it cost us? All this in the following video.