Lawyers
Canceling a Property Gift in Bankruptcy Proceedings Under Israeli Law
During bankruptcy proceedings, a thorough investigation of the debtor’s finances is conducted to locate all assets that can be used to repay creditors. In many cases, these investigations reveal that the debtor transferred property — either as a gift or for nominal consideration — to another individual in an attempt to shield those assets from creditors. When such transfers are identified, the court may declare them void, reverse the transaction, and include the assets in the bankruptcy estate for distribution to creditors.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
How Do Bankruptcy Proceedings Work in Israel?
When a person accumulates debts beyond their ability to repay, they may file for bankruptcy. During the proceedings, the debtor receives protection from creditors — collection actions, lawsuits, and enforcement proceedings are stayed. Meanwhile, an appointed trustee conducts a comprehensive investigation of the debtor’s financial affairs, identifies all realizable assets, and works to distribute the proceeds equitably among creditors. This process is designed to balance the interests of both debtors and creditors under the law.
Reversing Property Transfers Made Before Bankruptcy
A critical component of bankruptcy proceedings is ensuring that all of the debtor’s realizable assets are identified and included in the bankruptcy estate. The trustee has the authority to look back up to ten years and reverse property transfers made by the debtor before the bankruptcy filing.
This authority is grounded in the principle that gifting assets prior to bankruptcy diminishes the debtor’s ability to repay creditors and effectively violates their rights. Importantly, the trustee can reverse a transfer even if it was not made with fraudulent intent — there is no requirement to prove a dishonest motive. However, this authority is not unlimited, and certain exceptions apply.
Exceptions to the Trustee's Authority
The trustee’s power to reverse property transfers is subject to several important limitations:
- Timing: If the debtor filed for bankruptcy within two years of the transfer, the trustee may reverse it. If the filing occurs between two and ten years after the transfer, the trustee may only reverse it if the debtor cannot prove they could have paid their debts without the transferred property.
- Nature of the transfer: The law excludes transfers made in consideration of marriage, as well as transfers made for adequate consideration — meaning transfers that were not gifts but genuine, fair-value transactions.
These exceptions are designed to protect legitimate transactions while still allowing the trustee to recover assets that were improperly removed from the debtor’s estate.
Consult an Experienced Bankruptcy Attorney
Whether you are a debtor considering bankruptcy or a creditor seeking to recover transferred assets, legal guidance is essential. At Adv. Mor & Co., our attorneys have extensive experience in bankruptcy law and asset recovery proceedings. We can advise you on your rights, represent you in court, and help ensure the best possible outcome. Contact us today for a consultation.