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The Jewish Ethicist: Bankruptcy

The Jewish Ethicist: Bankruptcy

Does Jewish tradition favor income equality?


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.

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The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.

The Jewish Ethicist is a joint project of and the Business Ethics Center of Jerusalem. To find out more about business ethics and Jewish values for the workplace, visit the JCT Center for Business Ethics website at

October 9, 2004

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Visitor Comments: 4

(4) Anonymous, October 17, 2004 12:00 AM

The Jewish Ethicist: Bankruptcy

An additional thought to add is bankruptcies are often caused by excessive interest. This is either direct when the loan repayments are too big for the borrower to afford (think about ballon mortgages), or indirect when excessively risky loans are made at high interest rates to profit the lender. Since the Torah prohibits Jew to Jew interest (unless
circumvented), you could say the Torah takes a step to prohibit getting to the state where bankruptcies are more likely.
Nice column, as usual.

(3) Beverly Kurtin, October 15, 2004 12:00 AM

Sometimes it happens

The original question was "is it ethical to declare personal bankruptcy?" I aver that not only is it ethical, it it mandatory when a creditor turns predatory and refuses to work with the debtor who is attempting to deal honestly with them.

My debts were incurred while I was still working as a computer engineer. I suffered a massive stroke which caused me to have to retire early. That was 9 years ago. For those 9 years I struggled to repay each of those creditors. In fact, I had repaid the principal; I was paying interest on interest on top of late fees.

One creditor pushed me so hard that I had a heart attack! They even tried to dun me while I was in the hospital! I had to use a lawyer to get them to get off my back.

Then I had to make a life or death choice: continue to pay 30% interest or buy the prescriptions ordered by my doctor (over $600 a month!). I chose to live and to declare Chapter 13.

My creditors brought that upon their own heads by refusing to work with me. I never thought that I would have to declare bankruptcy, but I'm in no way ashamed or embarassed that I did. That is why I permitted my name to be published. It is my prayer that others who are suffering under the abusive, parasitic and predatory credit system will suck it up and help themselves get out and get a new start. Believe me, it beats a heart attack!

I deliberately chose Chapter 13 so that I could complete paying my creditors. Just because they were unethical doesn't mean that I have to emulate them. One can be broke and remain ethical.

President Harry Truman authored the provisions of Chapter 13. God bless him for doing so.

(2) Anonymous, October 14, 2004 12:00 AM

Rabbi, please respond to this

I very much enjoyed reading your "jewish ethicist" column this week.I am interested in what you would say to the "anonymous" reader with regards to the Exodus 21 and Eved Ivri etc..... is it the equivalent of Jewish bankruptcy?
Rabbi Dr. Meir please write a response. Thank you.

(1) Anonymous, October 11, 2004 12:00 AM

Hebrew servitude is Jewish bankruptcy

The concept of Eved Ivri (Hebrew servitude) found in Exodus 21 is the equivalent of Jewish bankruptcy. Not only a thief (who cannot afford to pay back even the principal that he stole) but also a debtor may sell himself into servitude for a maximum of 6 years in order to make a good faith effort to pay back his debts.
The Torah thus discourages one from merely walking away from one's debts by simply declaring personal bankruptcy, and instead encourages the debtor to pay back as much as possible by working a maximum of 6 years to pay off those debts.

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