How Should We View Bankruptcy?

If someone files for bankruptcy and is no longer legally responsible for his debt, does he still have a moral obligation to repay his creditors? Does Scripture address this issue, perhaps in conjunction with the year of jubilee, or is there no connection? May people or organizations file multiple times? Does the church do anything about seeing to their making restitution when possible?

The reader asks about bankruptcy. I will not address the legal ramifications of bankruptcy because I do not pretend to be a legal expert and the Schuyler column is designed more for biblical and moral questions. But, since the word of God is profitable for all good works, we can apply biblical principles to this question also.

Perhaps it might be best to begin with some definitions. A creditor, who might be a person, a business or a financial institution such as a bank, is one who lends money to another person. A debtor is a person who has borrowed and therefore owes money to another. Usually a debtor can satisfy his creditors by giving them regular payments. However, a time may come when a debtor is unable to maintain regular payments. Ideally the debtor should then seek to make some arrangement with his creditors. Often the creditor will agree to lower regular payments over a longer period of time or even waive of part of the debt. A partial repayment is usually better than nothing. If this proves impossible, bankruptcy is an option, but it should only be used as a last resort when all other possibilities have been explored. Bankruptcy allows the debtor to be released from his debt and the creditors to recover some of his money. A judge declares a debtor to be bankrupt, liquidates his assets, and orders the proceeds to be distributed among the creditors. Often some of the debtor’s assets (his most essential) are exempt. This enables the bankrupt debtor to make a new financial start and the legal obligation to pay is waived.

Many Christians view bankruptcy as sin. They argue that bankruptcy is a way to avoid paying what is owed. Bankruptcy could be sin, and the occasion for filing for bankruptcy could be sin as well. However, whether bankruptcy is sin as such and in every situation is debatable.

Bankruptcy is the result of becoming mired in debt. The underlying issue then is the debt itself. The Bible gives us this principle: “Owe no man any thing, but to love one another …” (Rom. 13:8). Some have imagined that this text forbids mortgages, car loans or credit cards. However, the principle is not to forbid all debts. The idea is that we must not take out loans that we have no intention of repaying. That would be deliberate theft. To throw oneself deliberately into debt is therefore foolish and wrong. When a Christian enters into a voluntary financial contract he must intend to be faithful to his obligations. He must not do so irresponsibly. Moreover, the Christian must live in the consciousness that he is a steward of God’s gifts. We do not actually own anything absolutely. Everything we possess is God’s. God will hold us to account for how we have used his gifts and our calling is to use the things of this world to glorify him. We must not squander the goods of this world on ourselves. We live in a materialistic age where instant gratification is possible by simply swiping a credit card or typing our credit card number into an online form. Often we forget that the credit card bill will come back to haunt us. When we buy things we need to ask, do I need this? Can I afford this? Will I be able to afford this when the bill comes? The governments of this world are hopelessly in debt, and the citizenry have followed them by refusing to deny themselves the luxuries of life. Christians must avoid covetousness and must work honestly so that they can support their families, the church, and give to the poor (Eph. 4:28; 2 Thess. 3:6, 8–12). A Christian must not live recklessly and irresponsibly and then seek to escape his obligations by running to the bankruptcy court.

However, not all bankruptcy is caused by careless or reckless spending. Circumstances vary. There are times when by no fault of their own Christians get into serious financial distress. We must not be tempted to judge our brother here. What does a man do when he loses his job but still must pay his mortgage and other bills? When unexpected medical expenses take away his savings? When the small business in which he has labored for many years is no longer viable? Clearly, the Christian must seek to do what is best for his family, equitable for his creditors, and right in the sight of God. If, after exploring every possible avenue, bankruptcy is the only recourse, that avenue is open to him. Does he do it to avoid paying his bills, to swindle his customers and his creditors? Then he sins. Does he do it because he has no other choice, and no way of paying what he owes? Then in my view he does not sin. But since the Bible does not directly address the subject I will not be dogmatic.

We can be thankful that we live when such legal avenues are available. For much of history, debtors were not treated so kindly. Often they and their families were sold into slavery or they were cast into the debtors’ prison (2 Kings 4:1ff.). Bankruptcy might not be the optimum solution, but surely it is better than that! The reader asks about the year of Jubilee (Lev. 25) but that is not applicable here. The law of Jubilee applied only to the land of Canaan, only every fifty years, and only to Israelites. It was a law that made sure that the land remained with the families to whom it was allotted in the days of Joshua. The impoverished it was designed to help were not reckless spendthrifts, but God’s people who were victims of circumstances (plague, famine, etc). It provided an equitable solution for the poor in their distress and is an example of the merciful provision in God’s law, but it does not apply to modern nations.

Remember as well that the church has a role to play in all this. First, an impoverished Christian must not be ashamed to seek the help of the deacons. They are the representatives of the merciful Christ in the congregation. They do more than distribute alms. They also give advice on good stewardship. Often good management (if a person is not already hopelessly mired in debt) can avoid the case ending in bankruptcy. Second, if the elders have reason to believe that a man is exploiting his neighbor by abusing bankruptcy laws they should certainly intervene and admonish the church member. Church discipline might even be necessary in certain cases (1 Cor. 6:5–10), but each case would have to be determined individually.

I hope this answer, which by no means answers all the details concerning the subject of bankruptcy, has been of some help to our readers. Let us seek to be faithful in our financial affairs as well as in every other aspect of our life as stewards of what God has given.