BANKRUPTCY AND THE BIBLE
By Charles R. Chesnutt
In Roman times, when poverty was rampant and deadly, the
legal system viewed insolvency not as a "circumstance" but
as a crime. Creditors in pre-Christian Rome held great power
over their debtors. For instance, a creditor could force the
entire estate of a debtor to be sold to one person who would
then pay a certain percentage of the debts to the other
creditors. (FN1)
When such a sale took place, the debtor still owed whatever
debts remained after the sale; he was still required to pay
all his creditors or face other consequences. Since all of
his belongings had been sold, he and his family were left
with nothing to live on while the debtor attempted to earn
enough money to pay the remaining debts. He could be reduced
to starvation and be forced to borrow again. Nothing could
release him from these debts short of payment, and if he did
not pay them, then he could be exiled, imprisoned, enslaved
or executed. (FN1) At one time in Roman history, the debtor
who was executed was cut into pieces and then the pieces
divided up among his creditors.(FN3) At a later time in
Roman history the debtor was protected from physical abuse,
but he was never discharged from his debts. He took them to
his grave.(FN4)
He
was never free of them. All of these measures had one thing
in common: they all placed the value of the debt far above
the value of the debtor.
Under these Roman laws, the rich were given the power of
life and death over the poor. It is, of course, easy to
criticize the poor and to fault them for borrowing money
that they could not repay. But many of the poor starved.
What does one do when one must borrow or starve, or see his
children starve? The honest poor man does exactly what the
honest rich man would do if he had no money to buy food. He
borrows; he does not steal.
The society in which such laws had sway was a society of
great cruelty. It is ironic to reflect upon the fact that
although such heavy consequences were inflicted for failure
to repay, the consequences themselves must have often
rendered it impossible for a debtor to repay. Imprisonment,
destitution and corporal punishment do not serve to create
any income to repay debts; it stifles life and eliminates
income.
The situation had not significantly changed by the time of
the middle ages, which ushered in the infamous debtor's
prison in England where the debtor would remain in prison
until someone else paid his debts for him.(FN5) The debtor
was effectively held hostage until his relatives or friends
would pay his debts. If he had no relatives or friends, he
would live in prison until the day he died. He would never
be free of his debts. If he had left a wife and children
outside the prison, they might be forced to borrow money in
order to eat, and the cycle of debt for the family would
begin again, except this time without a father.
What the system of laws like these actually accomplished,
aside from providing for useless and corpulent misery for a
debtor, was to make it practically impossible for the debtor
to ever extricate himself from his debts. The laws were
self-defeating. Since the laws often made it impossible for
the debt to be repaid, everyone lost, the creditors, the
debtors, and also the society, which lost what may have been
a productive wage earner and taxpayer. Even if he could
escape prison, once a man became a debtor, he could easily
remain one for the rest of his life.
It was never God's intention to create a society where
indebtedness was a crime. If we look toward the roots and
legal structure of the Jewish society set forth in the Old
Testament, we see a picture exactly the opposite from that
of the remainder of the world. We see a society where loans
were kept to a minimum by force of law, and gratuity and
charity, by force of law, were kept to a maximum. To
accomplish this end, God did not outlaw borrowing and
lending, but instead He provided that loans would eventually
become gifts, and thereby limited loans only to those in
need. He permitted the loan to take place, and the
consequent legal obligation to repay to arise, but He
limited the legal obligation to repay to a maximum of only
seven years. Every seventh year all lenders were to release
their debtors from all their debts. Every seventh year, the
debtors were discharged from all their loans and were no
longer legally obligated to repay them. The debtor was free
of all loans, and by force of law the creditor had made a
gift:
"At the end of every seven years thou shalt make a release.
And this is the manner of the release: every creditor who
lends ought unto his neighbor, shall release it; he shall
not exact it of his neighbor, or of his brother, because it
is called the Lord's release." Deut. 15:1,2.
This has approximately the same effect as a discharge in
bankruptcy today:
"A discharge in a case under this title . . . operates as an
injunction against the commencement or continuation or an
action, the employment of process, or an act, to collect,
recover or offset any such debt . . . " 11 USC Sec.
524(a)((2).
To underscore God's demands for munificence, the scripture
also provides that when the potential creditor was asked to
lend money to the poor, he was forbidden to consider the
fact that his debtor might soon be released from his
obligation to repay because the seventh year was
approaching! Indeed, the creditor was chastened if he
withheld his bounty from a poor debtor even if he knew that
he would never get it back:
"Beware that there be not a thought in thy wicked heart,
saying, The seventh year, the year of release, is at hand;
and thine eye be evil against thy poor brother, and thou
givest him nought; and he cry unto the Lord against thee,
and it be sin unto thee." Deut. 15:9.
The concept is repeated in the New Testament:
"Give to him that asketh thee, and from him that would
borrow of thee turn not away." Mt. 5:42.
Under God's plan it was the creditor who was given the
onerous commandment to lend and to give, not the debtor who
was punished because he could not repay. There was a stark
contrast between God's approach and the early laws of the
Romans and the English. The approach in the Bible was
precisely the opposite of the world view prevailing at the
time.
In the view of the world today, as well as at that time it
is the debt, and the paying of it, which is of paramount
importance. The debt is far more important than the debtor.
Creditors are not in the least concerned with the hardship
they cause to debtors when they collect, nor are they
concerned with what the debtor must do in order to pay the
debt. The debtor is irrelevant; it is the debt that is
important.
In scripture it is exactly the opposite; in scripture, it is
the debtor who is far more important than the debt. And it
is forgiveness of debt and charity and giving that is
stressed and required, not repayment. In scripture, the
person is more important than the money.
Today, with the introduction of interest and interest upon
interest, and then penalties for failure to timely pay the
principle and the interest on the principle, and interest on
the penalties, much of the world is effectively obtaining
payment without lending. God on the other hand was requiring
lending without repayment and the exacting of any interest
from a fellow Israelite was solidly against Old Testament
law.(FN6)
It was not until 1705 that the British bankruptcy statute of
Queen Anne provided for an opportunity for a debtor in
Britain to be released from his debts.(FN7)
It
was probably the world's first discharge in bankruptcy in
bankruptcy since the statutes of Moses. The common ground
between the bankruptcy statutes of Moses (Deut. 15) and that
of Queen Anne and modern bankruptcy law is release from
debt. The release from debt means that at one point in time,
the debtor can become free of his debts even if he cannot
pay them. This benign concept forms the core of the belief
that a person should, in this life, possess the legal and
moral ability to start over, no matter how much he owes. In
Deuteronomy 15 and Leviticus 25, God not only permitted the
release of debt but He also made release from debt an
obligatory and a continuously recurring phenomenon. The
release of debt found in Deuteronomy and Leviticus carries
generally the same result as the release of debt provided in
modern bankruptcy laws. The release of debt in modern
bankruptcy laws is called a "Discharge of debt." In both
cases it is a release and a discharge from debt.
There are other similarities between the laws of today and
the biblical laws. For instance, under modern United States
bankruptcy laws the debtor cannot obtain a release more
often than once every six years, 11 USC Sec. 727 (a) (8);
Moses provided for seven years, Dt. 15:1. Modern bankruptcy
law provides for a discharge of certain debts, but not all,
11 USC Sec. 523; the biblical bankruptcy was also limited,
but in different areas, Dt. 15:2, Lv. 25. Today, after a
bankruptcy has been filed and after a discharge is obtained,
the debtor is protected from any legal process to collect
his debts (11 USC Sec. 362, 524); the same was true for Old
Testament debtors whose creditors could not "exact" their
debts (Dt. 15:2, Lv. 25:17).
There are several significant differences between the
Deuteronomy 15 release of debt and the release afforded by
modern bankruptcy laws. One of the differences is that the
Deuteronomy 15 release did not require the debtor to give up
any of his assets before he was released, nor did it require
him not to be able to repay. The Old Testament release did
not require the debtor to be destitute or to surrender
anything of value in order to obtain a release from debt.
This is not the case with a bankruptcy proceeding in the
United States today. In a modern bankruptcy, the debtor is
required to relinquish all that he owns, except for
necessities of life, in exchange for the release of his
debts. Under the United States bankruptcy laws, the instant
that the debtor files bankruptcy, the trustee in bankruptcy
effectively owns all of the debtor's possessions and the
trustee is charged with selling them to pay the
creditors.(FN8)
Of
course, certain well defined assets of the debtor are exempt
from this process; these are the assets which have been
defined as being necessary for the debtor to continue with
life.(FN9)
An honest bankruptcy obtained under the United States
Bankruptcy Code is certainly not necessarily unrighteous in
the sight of God. The bankruptcy proceeding in the bible was
far easier to obtain than the bankruptcy of today. In the
release of debts found in the Bible there was no requirement
that any assets be sold to pay creditors. There is such a
requirement in current bankruptcy laws. In the biblical
bankruptcy there was no requirement for any type of
administrative or court proceeding, as there is with current
bankruptcy laws. There were no lawyers, no fees, no judges
or trustees; but instead, by pure fiat of law, at a
particular time there was simply a blanket discharge of all
loans, no matter how much property a debtor had. Therefore,
within the scope of its application, the bankruptcy process
in Deuteronomy and Leviticus was far more liberal and debtor
oriented than the one provided for in the United States
Bankruptcy Code.
It is righteous to forgive, and God's grace and His demand
for forgiveness does not expand to the point of reaching the
dollar and then stop there. The principle of God's
forgiveness includes forgiveness of debt (Dt. 15:1,2; Luke
16:1-13), the forgiveness of lawsuits (1 Cor. 6:7, "Why not
rather be defrauded?"), and the unlimited forgiveness of all
wrongs (Mt. 18:21,22).
If God saw nothing unrighteous with a very debtor-oriented
release in the Old Testament, it is difficult to believe
that He would consider a more conservative and more
difficult release of debt to be unrighteous under today's
laws. God invented the discharge of debts. God is a God of
forgiveness and he wants His people to be forgiving people,
and this includes financial forgiveness as well as moral
forgiveness (Luke 16:1-13). A legal bankruptcy of today can
therefore be fully in accord with scripture.
There is no limit to the forgiveness that God offers through
His Son Jesus Christ who paid for the sin of the world on
the cross (Jn. 1:29; Rom. 5:8). We are called to be like Him
(Jn. 17:23; Mt. 5:48) and to trust what He accomplished on
the cross so that we may be saved. After a release from debt
takes place, it is possible, even for a debtor with
insurmountable debts, to owe nothing to anyone (Rom. 13:8)
and to be at peace with God.
In one area, the bankruptcy in Deuteronomy was more limited
than modern bankruptcy. In the Old Testament law, not all
debts were released. It depended upon how the debts arose.
The release of debt in Deuteronomy 15 was addressed to "the
creditor who lends anything..." Thus, the Old
Testament bankruptcy laws applied to debts that arose from
the lending of something, and not necessarily to debts that
arose for other reasons. For example, the Deuteronomy
passage makes no provision for the release of debts that
were owed for wages. In the Old Testament, a wage owed by an
employer to an employee was probably a non-dischargable
debt; wages were not even to be kept by the employer
overnight and the failure to pay wages is likened to robbery
(Lev. 19:13). See also Mal. 3:5, James 5:4. Thus, although
today's bankruptcy laws may permit the discharge of debts
owed for wages, scripture would probably see the discharge
of those debts as unrighteous. Another example might be a
debt incurred by fraud, even if it was a loan. See Psalm
37:16, 21.
Of course, the bankruptcy of the Old Testament, or, more
accurately, the discharge of the Old Testament, was written
for the agrarian society of Old Testament times and not for
the modern world's system of commerce. In order to
approximate the provisions of the Bible in today's world,
issues that did not exist in Old Testament times must be
addressed and they must be addressed in the form of modern
statutory law. But that statutory law should follow the
underlying principles of honor and righteousness and truth
and charity as we find throughout the scriptures.
Bankruptcy is a Calculated Risk
for Lenders
The Old Testament lenders were certainly well aware of the
law that limited their right to collect. This is clearly
indicated in Deuteronomy 15:9. The same is true today.
One has only to read a mortgage or a lien used by any bank
or professional lender to understand how deeply concerned
creditors are of collecting what is owed to them. Banks are
extremely careful to protect their security. The risk of
bankruptcies being filed by borrowers is clearly anticipated
by lenders and understood as a calculated expense of
business. Banks and other commercial creditors lend money
and extend credit with the express purpose of making more
money. They are willing to lend money because they gain more
money off of interest than they lose to insolvencies and
bankruptcies. They lend money to make money. The success of
the borrower's enterprise or the borrower's income is a
calculated risk that the bank takes when it advances a
business or a personal loan. The bank will make money if the
enterprise succeeds and the loan is paid back, and the bank
will lose if the enterprise doesn't succeed or the loan is
not paid back.
Therefore, when the bank makes a loan it makes an
investment. To ensure that it does not lose its investment,
the bank may take a larger ownership in the borrower's
enterprise than the borrower himself. This is normally taken
in the form of a lien or a mortgage against the borrower's
property. Some security devices of banks give them their
share of the profits and none of the risks - other than
bankruptcy.
Since the loan that the bank makes is an investment for the
bank as well as for the borrower and both the bank and the
borrower are, or should be, well aware of the intrinsic
risks. The bank and the borrower are, in a sense, united in
a joint effort for the purpose of profit for both. In one
sense, where there is a business loan, the bank almost
becomes the unofficial "partner" of the borrower.
The same is true for the bank or credit card company that
lends money or extends credit for consumer purchases rather
than business purposes. These lenders are lending money and
extending credit for the purpose of making as much money as
possible and they are doing it with the understanding that
some of the people who borrow from them will go bankrupt.
They take the calculated risk that most borrowers will be
able to pay back what they have borrowed. In one sense, they
are "partners" with the borrowers and they are relying on
the hope that most borrowers will be able to manage their
affairs and income and pay back the lender much more money
than the lender has lent out.
These "partnerships" rise and fall together. If one such
"partnership" happens to fall, there is no biblical reason
for the borrower in that partnership to isolate all the loss
to him and to fail to apportion the lender's loss to the
lender in accordance with applicable bankruptcy law. In
fact, by the time bankruptcy is considered the lender has
probably already absorbed the loss by writing off the loan.
Therefore, unless there is a specific biblical provision to
the contrary, utilization of today's bankruptcy statutes is
neither unexpected nor unscriptural nor necessarily unwise.
Except where there is a biblical provision to the contrary,
the United States Bankruptcy Code provides a breadth of
application that permits a bankruptcy in accordance with
scriptural principles.
Money Management
The Old Testament lending laws not only show us God's
principles that should underlie all debtor-creditor
relations, but they also demonstrate righteous principles
that should govern money management.
It is obvious that a society that released all loans every
seven years was a society where few loans were made. And
when consumer loans were made, they were made only under the
most compelling of circumstances or else they were made to
borrowers who were very trustworthy and able to pay back
their loans.
It is true that Deuteronomy 15:7-9 required the lender not
to even consider the upcoming year of release and to lend to
the poor even though he knew that the debt would soon be
released. But this applied only to borrowers who were poor
and in true need of help.(FN10) It did not apply to
borrowers who were not really in need.(FN11)
Lenders
were not required to lend to people who did not need it.
Therefore, the lenders of the Old Testament were probably
very careful to determine if a prospective borrower was
really in need before considering themselves bound under the
Law of Moses to make a loan that would eventually become a
gift. The effect of these laws was to require the motivation
for consumer lending to be charity rather than profit. By
the utilization of the year of release and the command
against exacting interest
(FN12), God structured the law of Israel in
such a way that living on credit was practically impossible
to those who did not need it to survive; and to those who
needed it, it became charity.
God's provision for the protection of the creditors whose
debts were released was not to permanently hold the debtor
to the debt, but to make the risk of lending abundantly
clear to the lenders, so the lenders would be fully aware of
the risks that they were undertaking. Precisely the same is
true today. Every commercial and consumer lender knows of
the risk of bankruptcy. The major difference between the Old
Testament lending and to day's methods is that today the
release from debt is not automatic and there are no laws to
prevent the charging of interest. The result is that massive
profits can be generated by the use of eighteen and twenty
percent interest rates in consumer credit transactions.
These profits override the risk of bankruptcy and those who
pay back their loans at these interest rates are in effect
not only paying back their own loans but also the loans of
the bankrupt borrowers as well - and a large profit to the
usurious lenders.
Since the scripture is clear that God's original idea was to
curtail lending, and especially consumer lending, it follows
that His original idea was also to curtail borrowing. This
fact speaks volumes to today's consumer credit lifestyles.
From the scriptures it is clear that God never meant us to
live on other people's money, but to live on our own.
Consumer borrowing as a way of life and consumer lending as
a business have no basis in scripture. Living on credit
cards and time payment plans and long easy terms are devices
that were never intended to exist for the chosen people in
biblical times. And these devices are a snare today. When
misused, they are nothing more that the means of producing
an illusion of wealth, a fiction, a belief that one can own
or does own those things which, in reality, he does not
really own and cannot obtain. Consumer borrowing is the
ultimate in financial temptation: wealth without money. It
is appearance without reality: it is a demon in the garb of
an angel.
A Legitimate
Purpose for Borrowing
Although interest and lending for profit was generally not
permitted in Israel, what was permitted was for Israel to
extend commercial credit at interest to the gentiles
and heathen.(FN13) It is foundational in Old
Testament scripture that Israel should prevail over the
gentiles and the heathen nations.(FN14) One of the ways
that Israel was to prevail over the gentiles was through
commercial and consumer lending at interest by Israel to the
gentile people and nations. In Deuteronomy 28, God set
before the people of Israel blessings and curses. One of the
blessings that were offered was that God would bless the
labor of Israel so that Israel should lend to the Gentiles
and not borrow from them. By doing so, Israel would be the
"head and not the tail" and "above only and not
beneath.”(FN15)
On the other hand, if Israel did not obey the commandments
of God, they would suffer severe curses, one of which was to
be the opposite of the blessing. The stranger in the land
would lend and the children of Israel would borrow; the
stranger would become "very high" and the children of Israel
"very low"; the stranger would become the "head" and the
children of Israel the "tail.”(FN16)
The curse of God was to make His people
borrowers. This is one of God's purposes for borrowing; it
is His curse. But from the perspective of the money lender,
the other purpose of borrowing was charity.
It is through lending at interest that one can gain
domination over another: the borrower becomes the lender's
slave: ". . . the borrower is servant of the lender." Prov.
22:7 One of Gods purposes in the release of debt was to
provide an escape from the civil bondage of debt and to
provide freedom and a new start.
Bankruptcy and
the New Testament Message
There is a striking resemblance between a discharge of debt
in bankruptcy and a discharge of sin by Christ. When Jesus
Christ was crucified on the cross, He died for the sins of
the world. That means that when He died he paid the penalty
for all sin. You and everyone else must ultimately make a
choice. You must choose whether you will let Christ’s death
pay for your sins or not. The trouble with choosing to let
Christ’s death pay for your sins is that by making that
choice you admit that you have sinned and that you need
forgiveness. For some people, this is not so easy because
pride gets in the way. However, once pride is ignored and
the need is admitted, you make a conscious decision to trust
in what Christ has done on the cross for the forgiveness of
your sins. This is when you become a Christian. When this
happens, you no longer have to pay for your sins. Instead,
you have appropriated the payment made by Jesus Christ
rather than trying to make your own payment. Your sins have
been discharged and you have been spiritually healed. This
is called salvation. The meaning of the biblical word for
salvation is “healing.” It comes from the word for salve,
which is a healing ointment.
When you file a bankruptcy, you must come to a point where
you must finally admit that you cannot pay your debts. For
some people, this is not easy, because pride gets in the
way. However, once pride is ignored and the need is
admitted, you make a conscious decision to file bankruptcy
and publicly admit how much you really owe and admit that
you can’t pay it. Once this is done and your bankruptcy is
finished, then it is as if all of your debts (all of your
dischargeable debts) have been paid and you are free to
begin again. This too can be very healing.
It is for this reason that we believe in what we do here,
and we believe that an honest bankruptcy based upon honest
needs is all right with God. After all, He invented it.
Conclusion
A bankruptcy is an effective means to deliver a debtor from
the servitude of impossible debt and to break the cycle of
borrowing. It will not, however, cure the debtor of the
habit of living on borrowed money. Only the debtor himself
can deliver the permanent cure. Bankruptcy, especially if it
occurs because of consumer borrowing, is something that
should happen no more than once in a lifetime, if then. It
should be a means to change and to adjust one's self to a
way of life based upon the reality of ownership rather than
the fiction of borrowing. It should be used in conjunction
with a change of direction. A bankruptcy should be the
beginning of something and the end of something. It should
be the end of an overwhelming debt burden and the beginning
of a new way of life.
1
Alexander L. Paskay, Trustees and Receivers in Bankruptcy,
Matthew Bender (1968), p. 3; Dalhuisen, J.H.,
Compositions in Bankruptcy, Sijthoff-Leyden (1968), p.
6; Dalhuisin, J., Roman Law of Creditors Remedies, in
ABA Section of International Law, European Bankruptcy
Laws, 4-5 (1974).
2
Alexander L. Paskay, Trustees and Receivers in Bankruptcy,
Matthew Bender (1968), p. 3; Dalhuisin, J., Roman Law of
Creditors Remedies, in ABA Section of International Law,
European Bankruptcy Laws, p. 3 (1974)
3
Id.; Nadler, The
Humaneness of the Bankruptcy Law, 60 Com.L.J. 149 (1955)
4
Id.; Code of Justinian,
Dig. 2, 4, 25, 48, 19, 1 Nov. 4, 3.
5
Paskay, Alexander L., Trustees and Receivers in Bankruptcy,
Matthew Bender 1968; 11 Edward 1 (1283)
6
Dt. "Unto thy brother, thou shalt not lend upon usury." Dt. 23:20.
7
Id.; Anne, Chapter 17.
8
11 USC Sec. 541, 363
9
11 USC Sec. 522
