Is the economic slowdown causing many households and business people to collapse under the weight of their debts? Over the past decade, the number of personal bankruptcies has risen by over 600%. The courts issued 7,633 such bankruptcy orders in 2011, compared to only 1,194 in 2001.
The trend continued this year, based on analysis of the data about people filing for bankruptcy, which were supplied by the Official State Receiver and the Administrator General in the Justice Ministry.
Through mid-July, 4,689 bankruptcy orders were approved, an annualized figure of about 8,700, which would be a further increase from last year.
The biggest growth in bankruptcy orders came in the Jerusalem region, with a 1,070% increase. Nonetheless, the Jerusalem area has many fewer bankruptcies than Tel Aviv - 491 in 2011, compared to 3,146 for Tel Aviv last year.
Despite the steep rise in bankruptcies, the Justice Ministry says the cause is not the deteriorating economic situation, but is due instead to technical changes in the bankruptcy process. Revisions in the law have removed barriers to applying for bankruptcy, especially in the availability of government financing for the required NIS 2,600 deposit, said the ministry.
In the bankruptcy process, the court transfers control of the assets of the person or small business to the Official Receiver, who is then responsible for selling off these assets and using the money to pay the outstanding debts. Individuals are entitled to file for bankruptcy if their debts are greater than NIS 10,000. Creditors can also petition the court to declare a debtor bankrupt is they are owed over NIS 50,000.
Most of the time it is the debtors who request court protection and bankruptcy, since it protects them from various legal actions their creditors might take.
Most bankruptcy requests come from households, who for example cannot meet their mortgage payments, or small businesses; but it is impossible to separate out the self-employed from others or businesses in the existing data.
The Justice Ministry admits that there seems to be a rise in households seeking bankruptcy protection, which was rare a decade ago.
From data provided by the National Insurance Institute, it seems the number of business bankruptcies has been holding somewhat steady, about 500 cases a year; so the rapid growth must be coming from households and the self-employed.
Collapse of middle class
But not everyone agrees with the ministry's explanation. Lahav - Israel Association of the Self-Employed president Yehuda Talmon said the real reason is "the growing difficulty in running a business. The bureaucratic burden on one hand, and the credit crunch on the other are making it difficult for small business owners, who are the most vulnerable," said Talmon. Such small businesses can be toppled by "any storm," he added.
Lawyer and social activist Yuval Elbashan, co-founder and deputy director of Yedid - The Association for Community Empowerment, said: "This is a classic symptom of the collapse of the middle class. The poor are used to not living in debt since no one lets them run up debts - they don't have credit and they cannot get a mortgage. Those who receive credit and mortgages and can get into debt are the middle class, those who also have businesses and can go under,."
"In the past year and a half we have definitely seen a rise in the [number] of businesses and companies running into financial trouble and failing," said Tehila Yania, co-CEO of business data company BDI.
"If we look at the past ten years, we see volatility. In the more difficult years, because of the global economic situation, the Israeli economic situation and security events, there is a greater concentration of businesses running into trouble. But it is not a trend that is happening all the time, but a problem contingent on the economic situation. And in good years this trend is falling off," she added.
Elbashan said one of the great tragedies of the middle class all over the world is that until they collapse, they do not recognize the fact they are on the verge of it, and continue to spend.
"Those in the middle class think they can meet their debts, and continue to spend money on health and education," he said. The characteristics of the people applying for help at Yedid's centers has changed over the past decade, said Elbashan. At the end of the 1990s they were poorer, but today there are many more from the middle class. "We see people who have lost all their assets and discover they have not saved for the future," he said.
