Biblical Thoughts On Bankruptcy – The concept of bankruptcy is troubling for most people. The Bible offers guidance to both borrowers and lenders. There are four principles to consider.
First, the Bible teaches that people should perform on any agreement including paying debts. This is part of the general principle of the ninth commandment:
“You shall not bear false witness against your neighbor.” (Exodus 20:16)
Similarly, there’s Numbers 30:2 that says:
“If a man makes a vow to the Lord, or swears an oath to bind himself by some agreement, he shall not break his word; he shall do according to all that proceeds out of his mouth.” (Numbers 30:2)
Second, lenders are instructed that interest should not be charged on a loan to the poor. The Lord also forbade the lender from keeping things necessary for living even when the borrower offered such as security:
“If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall NOT charge him interest. If you ever take your neighbor’s garment as a pledge (security for payment of a debt), you SHALL return it to him before the sun goes down. For that is his only covering, it is his garment for his skin. What will he sleep in? And it will be that when he cries to Me, I will hear, for I am gracious (and, by implication, the lender is not).” (Exodus 22:25-27)
Third, in two parables Jesus used the illustration of forgiveness of a financial debt to teach about God’s forgiveness and the requirement that mankind forgive (see Matthew 18:21-35 and Luke 7:36-50). “And when they had nothing with which to repay, he freely forgave them both” (Luke 7:42).
Fourth, interestingly our modern bankruptcy laws resemble Biblical law as it relates to forgiveness of debt. U.S. Bankruptcy law allows for the forgiveness of most debts every 8 years through chapter 7. Biblical law released debts every 7 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).
Conclusion, people should pay their debts if possible, however the Bible clearly contemplates release of debts and forgiveness for people unable to pay. Modernly that release is found in the bankruptcy laws. Additionally the Bible, like some modern laws, prohibits predatory lending including loans designed to make the borrower a slave to the lender.
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Bankruptcy without a lawyer? According to a report by the Clerk of Court for the U.S. Bankruptcy Court for the Central District of California (Los Angeles and surrounding areas) summarizing statistics for 2011, the discharge rates vary dramatically depending on whether an individual is represented by an attorney. The discharge rates for pro se (acting as own attorney) are below.
CHAPTER 7 (straight bankruptcy) – Individuals without an attorney received a discharge of their debts in 61% of cases with 39% of cases being dismissed and debts reinstated. Individuals with an attorney received a discharge of their debts in approximately 95% of cases.
CHAPTER 13 (personal reorganization) – Individuals without an attorney had their plan confirmed (approved) in less than 1% of cases. Individuals with an attorney had their plan confirmed (approved) in 55% of the cases.
No attempt was made to distinguish between attorneys but as with all things some are better than others. The link to the complete report is below.
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Law Office of Michael Primus