Labour law7 min read8/14/2026

The Employer Went Bankrupt: Who Will Pay the Salary and Severance Pay?

A locked office door and an unpaid final month do not, by themselves, mean that Bituach Leumi will cover the debt. A state payment may be available to an employee after an official bankruptcy, liquidation, or order opening proceedings—and only after a claim has been filed.

Numbers and facts

•134,966 shekels—the maximum for salary and severance pay combined
•2018—the year the Insolvency and Economic Rehabilitation Law was enacted
•September 15, 2019—the cutoff date for the new filing procedure
•Form 5305—an employee’s claim for salary and severance pay
•Chapter 8—the legal basis for payment under the National Insurance Law

An Official Order Is Required First

Entitlement to payment does not arise merely because of the employer’s financial difficulties, but only after a bankruptcy, liquidation, or order opening proceedings has been issued. The payment is provided under Chapter 8 of the National Insurance Law, and the current procedure takes into account the Insolvency and Economic Rehabilitation Law, 2018. Therefore, a director’s statement that “there is no money,” the cessation of salary transfers, or the closure of the office is not sufficient. First, check whether official proceedings have been opened and what their case number is.

What Bituach Leumi May Pay

The benefit may cover verified salary arrears and severance pay. The combined payment for these two categories is capped at 134,966 shekels, even if the employer owes more. A separate payment is available for debts owed to a pension fund or another provident fund for amounts that the employer was required to transfer. This is not automatic compensation for the bankruptcy itself: specific debts arising from the employment relationship are reviewed.

Which Documents to Prepare

The claim must show not only the total amount but also how it was calculated. It is useful to collect in advance the employment agreement, pay slips, bank statements showing the transfers actually made, letters concerning the termination of work or dismissal, and pension fund reports on contributions. Also retain the employer’s details, the proceeding number, and any available order opening the proceeding. The precise list of required attachments should be checked in the current Form 5305; if the claim is filed on paper, Bituach Leumi states that the original form, rather than a copy, must be submitted.

Where to File the Claim

Form 5305 is used for salary and severance pay debts; Bituach Leumi recommends completing it online. The electronic form is sent both to the Commissioner for Insolvency Proceedings and Economic Rehabilitation and to Bituach Leumi. For proceedings commenced after September 15, 2019, employees file such claims with Bituach Leumi. In older cases—where a permanent liquidation order or bankruptcy order was issued before September 14, 2019—the claim is submitted to the trustee appointed in the proceeding, who reviews it and then forwards it.

Pension Debt Follows a Different Route

Unpaid pension contributions should not simply be added as a single line to the salary claim. A claim for debt owed to a provident fund is filed as a regular creditor claim of the “provident fund” type through the website of the Commissioner for Insolvency Proceedings. The government portal provides a separate filing option and a dedicated file for provident funds. Information about missing contributions should preferably be compared with the fund’s report, rather than only with the deductions shown on the pay slips.

What Happens After Filing

Bituach Leumi reviews the claimed debt and the supporting documents and then decides whether to approve or reject the claim. Requests for additional documents and the final notice appear in the Bituach Leumi personal account. A typical practical mistake is to state a total amount without a breakdown and evidence, or to choose the wrong filing channel for an older proceeding or pension debt. Even verified salary and severance pay arrears are paid only up to the prescribed maximum.

FAQ

Will Bituach Leumi pay if the company simply stopped paying salaries?

Not necessarily. For this payment, there must be an official bankruptcy, liquidation, or order opening proceedings; payment delays alone or the de facto closure of the business are not sufficient.

Can both salary and severance pay be received?

Yes, the benefit may include both types of debt. However, their combined payment is capped at 134,966 shekels, so the amount claimed and the amount actually paid may differ.

Where should Form 5305 be filed?

For proceedings commenced after September 15, 2019, the employee’s claim is filed with Bituach Leumi, preferably online. For older cases, the previous route through the trustee appointed in the proceeding applies.

Who will return money that was not transferred to the pension fund?

Bituach Leumi provides coverage for the employer’s debt to a provident fund, but the filing channel is different. A claim of the “provident fund” type is filed through the website of the Commissioner for Insolvency Proceedings and Economic Rehabilitation.

Where can I find out whether the claim was approved?

Requests for missing documents and the decision approving or rejecting the claim are posted in the Bituach Leumi personal account. Therefore, after submitting the form, it is advisable to check the account regularly rather than wait only for a regular letter.

What to do next

Check that an official order exists and verify the date on which the proceeding commenced, then prepare separate calculations for salary, severance pay, and pension debt. Prepare the supporting documents, choose the correct filing route, and retain confirmation of submission. If the employer’s calculations are contradictory or some documents are unavailable, you can clarify the procedure with the relevant authority or obtain an individual professional assessment.

Sources

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