The Morality of Bankruptcy

There are examples found within the Bible suggesting that bankruptcy has been in existence since the earliest of times. The Bible does teach that individuals have the responsibility to act as strong financial stewards. It is this belief that causes many to equate that teaching with the belief that filing for bankruptcy is immoral or shameful. However, this moral and legal obligation to pay your just debts is to be balanced by such considerations as the need for compassion and the call to cancel debts at periodic intervals. Take for example the cancellation of debt in the Old Testament which was based on the sabbatical and Jubilee years.

At the end of every seventh year you must cancel the debts of everyone who owes you money. This is how it must be done. Everyone must cancel the loans they have made to their fellow Israelite. They must not demand payment from their neighbors or relatives, for the Lord’s time of release has arrived.
Deuteronomy 15:1-2.

In the Old Testament, the forgiveness of debt was never in question. Debts were canceled every seven years whether the lender liked it or not. The debtor may or may not have been to blame for the debt. It did not matter. Debt relief was not questioned in biblical times, nor did it carry a negative connotation. God demanded it and the people obeyed.

The teaching of both the Old and New Testaments is that compassion and mercy, along with preservation of the family unit are to override economic concerns, such as loans.

Our modern day bankruptcy laws originate from the teachings of the Old and New Testaments.

The principle is that debt can be canceled to achieve some higher purpose—such as the preservation of the individual and the family unit. Jesus also taught us to ask God to “forgive us our debts as we forgive our debtors”. (Matthew 6:12, Luke 11:4).

Our forefathers recognized the importance of forgiveness of debt. Bankruptcy is in the United States Constitution (Article 1, Section 8, Clause 4) which authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.” The Bible contains debt forgiveness laws and our system of bankruptcy contemplates the “forgiveness” of debt. The bankruptcy laws and procedures we have today are designed to provide relief for overburdened debtors.

As with everything – balance is needed. The bankruptcy laws are not just one-sided in favor of the debtor. There are checks & balances in place to ensure that this process is not abused. For example, creditors receive tax credit for debt written off due to the bankruptcy of a consumer.