The Biblical Basis of Bankruptcy
brought to you by
The Rubinstein Law Firm
“When they had nothing with which to repay
he freely forgave them” (Luke 7:42)
The following is based on an article by Matthew B. Tozer and Ben E. Lofstedt, copyright 2006
Many people of faith feel guilty about seeking to file for bankruptcy protection. In some cases, they may feel guilty because they ran up large debts on their credit cards which they are now unable to pay. They may also feel bad their creditors will not be paid. The vast majority of people are uncertain about what the Bible teaches on this subject. However, before we address this topic, it is important for us to define what is meant by the term “bankruptcy.”
In the United States, our founding fathers recognized the importance of this subject and provided our government the right to make bankruptcy laws under the United States Constitution. The bankruptcy laws and procedures we have today as instituted by our federal government are designed to provide relief for overburdened debtors. In the simplest terms, bankruptcy allows individuals and entities who are over-their-head in debt to get a fresh start. Normally, a bankruptcy will discharge the debtor’s obligations to repay some or all of their debts.
Bankruptcy contemplates the “forgiveness” of debt. The Bible, likewise, contains laws about debt forgiveness of its own. Under U.S. law, a debtor may only receive a discharge of debts in a Chapter 7 bankruptcy once every eight years. Under Biblical law, the release of debts came at the end of seven years.
“At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’S release.” (Deuteronomy 15:1-2)
The Bible refers to debt as a form of bondage: “the borrower is a slave to the lender” (Proverbs 22:7.) Thus the debtor is a slave to the creditor. Interestingly, the Bible declares at the end of the sixth year:
“In the seventh year you shall let your Hebrew slave go free from you. And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock…” (Deuteronomy 15:12-14)
Modern bankruptcy laws, like the Biblical provision just mentioned, allow debtors to keep certain property when they file bankruptcy. Not only does this give debtors a free start, it also discourages debtors from going into debt-bondage again after their bankruptcy is over in order to survive.
In Matthew 6:12 and Luke 11:4 Jesus taught us to ask God to “forgive us our debts (sins) as we forgive our debtors (those who sin against us).” Sin creates a spiritual debt. Borrowing produces a financial debt. The law of justice states that if you agree to borrow money and to repay it you must pay back such debt. However, some debts are simply far too great to be repaid. For example, Jesus paid for our debt of sin on the cross, a debt far too big for us to ever repay. In a similar vein, the law of mercy states that if you cannot pay a debt back, you may, through bankruptcy, obtain forgiveness for your financial obligations.
As with any act of mercy, someone must bear the cost or the burden, just as Jesus did in dying for our sins. With a bankruptcy, the creditor and ultimately the consumers must, in mercy, bear the burden of the unpaid debt. Thankfully, God says He will bless us for such acts of forgiveness and mercy (Deuteronomy 15:5, 10. and 18.)
In two different parables Jesus uses the illustration of forgiveness of a financial debt to teach about God’s forgiveness and the requirements for people to forgive ((Matthew 18:21-35 and Luke 7:36-50): “And when they had nothing with which to repay, he freely forgave them both.” Just as on a spiritual basis, Jesus gives us a fresh start by cancelling all of our sin debts through His suffering and death, so to from an economic perspective, our nation will graciously help overburdened debtors by giving them a fresh start economically.
One of the guiding principles of a bankruptcy in the United States is that people filing for bankruptcy must have “clean hands.” Accordingly, a debtor may not be freed from debts which involve fraud, drunk driving, or deliberate wrongdoing. Moreover, bankruptcy laws does not allow for the discharge of child support or alimony debts. Further, student loans, taxes (Romans 13:1, 4, and 7) and secured loans are not forgiven in a bankruptcy. Through these restrictions, bankruptcy laws attempt to balance justice and mercy (Proverbs 1:3).
As with most biblical principles, there is a balance. If you can repay your debts you must. If you cannot, then you should determine how God would have you become free from the bondage of debt. Our modern bankruptcy laws are derived form the Bible (Deuteronomy 15:1-2.) The Bibles advises us to seek godly counsel (Psalms 1:1 and Proverbs 12:15, 11:14, and 15:22.) Ultimately, you must seek wisdom and guidance from God as to the direction that He would have you choose. Fortunately, God promised to give wisdom to those you ask with a trusting heart (James 1:5-7, Proverbs 3:5-6.)
Many bankruptcies are caused by events outside of a person’s control such as an illness or the loss of a job. However, if you have mismanaged your finances, confess your failings to God and by faith, you can receive His forgiveness and cleansing (1 John 1:9.) Remember, according to the Bible, there is no condemnation or guilt to those who have accepted Jesus as their Lord and Savior (Romans 8:1). Jesus, by His love and mercy, gave us a fresh start. Bankruptcy, based on the law of mercy with its divine origins may provide you with a fresh economic start and a new and brighter future. As God says in Jeremiah 29:11, “For I know the plans I have for you says the Lord. Plans for good and not for evil. To give you a future and a hope.”
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