Debtor Faces Jail Time for Non-Payment of Debts

A debtor in a bankruptcy proceeding that has lasted over a decade is facing a choice between paying NIS 35,000 in arrears or serving ten days in prison by the end of October. Supreme Court Justice Ruth Ronen rejected the debtor, Rafael Rubins', request for leave to appeal and a stay of the prison sentence. The proceedings began in 2015, initiated by a creditor. According to the court's decision, Rubins has consistently acted in bad faith since then, evading his obligations, which has led to previous court orders for his imprisonment.

In November 2024, a hearing was held to increase Rubins' monthly payments based on information about his financial capabilities. He was questioned about discrepancies between this information and his claims of financial hardship. Following a recess, Rubins agreed to pay NIS 2,500 monthly. However, he stopped making payments in April 2025 and failed to submit financial reports. He claimed to have proposed a creditors' arrangement contingent on funds from a third party abroad, which would only be released if the proposal was approved. He explicitly stated that payments should be redirected to this arrangement instead of his monthly obligations, a proposal most creditors rejected.

Later, Rubins announced the third party was willing to add NIS 60,000, while his debt to the estate had grown to NIS 35,000. District Court Judge J. Lubinsky Ziv of the Central District Court in Lod ruled that Rubins was capable of paying but deliberately refused, describing his conduct as among the most severe he had encountered. He ordered ten days of imprisonment unless the debt was paid.

Justice Ronen emphasized that imprisonment under the Bankruptcy Ordinance is an extreme measure, requiring certainty that the debtor is able to pay but chooses not to, that no milder alternative exists, that sufficient warning was given, and that the sentence is proportionate. Rubins proposed alternatives, including influencing creditors to accept his arrangement, reducing payments, or deferring the debt. Ronen dismissed the first option, stating that the payment order stands independently of any proposed arrangement. She clarified that creditors are not obligated to reach an agreement, and a debtor cannot unilaterally cease payments because they refused. Rubins' claim of inability to pay was also rejected, as his agreement to pay NIS 2,500 was made while represented and after an inquiry into his financial capacity. As no change in circumstances was presented and no reports were filed, his claims were deemed unsubstantiated. Ronen noted that Rubins has not paid for about a year and a half, and the imprisonment request was filed over a year ago, despite numerous opportunities to provide a convincing explanation. The District Court had previously postponed the start of the sentence as a gesture of goodwill to allow him to appeal to the Supreme Court.

The case operates under the old Bankruptcy Ordinance, applicable to pre-reform cases. While newer insolvency proceedings for individuals are based on payment orders and economic rehabilitation plans, the principle remains: failure to meet payments without justification can lead to the loss of the proceeding's protection. The court also addresses issues like whether a 'ketubah' debt can be discharged in bankruptcy. This decision underscores that a proposed creditors' arrangement does not freeze payment orders; the monthly obligation remains in effect until the arrangement is approved, and prolonged default can result in the harshest measure permitted by law.