Q. Most advanced countries allow indebted people to erase their debts through personal bankruptcy. Is this ethical?
A. It’s impossible to relate to personal bankruptcy in a vacuum. We need to examine this law in the context of the overall relationship between borrowers and lenders. The general principle is that an appropriate balance is needed between the protections and obligations of each side.
We find in a wide variety of economic relationships that the Torah balances the rights and obligations of each side, yet also leans slightly in favor of the weaker party.
In the case of worker and employer, the worker is required to work conscientiously and the employer is required to pay on time, but a number of specific laws give special preference to the worker, who is generally the weaker party. (In some instances where the worker has excessive bargaining power, these preferences are annulled.)
In the case of a sale, Jewish law avoids both the extreme of “caveat emptor” which puts all the responsibility on the buyer, but also the extreme of excessively strict liability which puts all responsibility on the seller. The seller is forbidden to mislead or take advantage of the customer, but after an accurate presentation of the merchandise the customer has to take responsibility for buying something which suits his needs.
In the case of loans, the Torah protects the lender by establishing a specific mitzvah on the borrower to pay back the loan and by giving the lender the right to certain liens; Jewish law also gives the lender responsibility by admonishing him to make loans which are within the borrower’s ability to repay. (1)
Conversely, the borrower is protected by the prohibition on initiating collection actions against a borrower with no assets, as the Torah commands, “Don’t be to him as a creditor” (Exodus 22:24). But he has a responsibility to use the loan in a responsible way, and to do his utmost to pay it back. (1)
The greatest protection of all afforded the borrower is the general release from all debts which takes place each Sabbatical year. This release applies technically to all borrowers, but the context in the Torah makes it completely clear that the intention is to aid the poor:
“At the end of seven years make a release. And this is the substance of the release: every one who has a loan by his fellow shall not dun each one his brother, for he has called a release to God. . . Beware that there should be an empty thought in your heart saying, the seventh year is coming, the year of the release; and your eye is against your needy brother and you don’t give him [a loan]; and he will call to God against you, and it will be considered for you a sin” (Deuteronomy 15:1, 9).
We see that the Torah specifically relates this commandment to “your needy brother.” It’s true that later sages enabled lenders to circumvent the release, because they discovered that despite the Torah commandment to lend without giving though to the release, poor people had difficulty obtaining credit when the release was in effect. But today there is hardly a problem obtaining credit. Despite the existence of bankruptcy statutes, poor people today are just as likely to suffer the opposite problem: lenders encouraging them to take on credit that they can ill afford. So the original ethical message of the Torah is particularly applicable in today’s situation.
We see that within a basic framework which obligates borrowers to do their utmost to pay back loans, it is appropriate and ethical to provide occasional permanent debt relief to needy borrowers whose debts keep them from making the “fresh start” which is one of the messages of the Sabbatical year. Thus, a personal bankruptcy statute which is equitably written and applied can be an ethical and important contribution to a balanced division of responsibility between borrowers and lenders in the modern economy.
SOURCES: (1) Shulchan Arukh Choshen Mishpat chapter 97.