Issue Number 3 --- 7 Menachem Av , 57545
Compiled and Published by Kollel Menachem - Lubavitch (Melbourne, Australia)
in the zechus of the Lubavitcher Rebbe, o.b.m.
Under present day secular law, individuals or companies, unable to repay their debts, are, under certain conditions, declared bankrupt. Their remaining assets are divided amongst the creditors, in proportion to the amount each is owed. Once certain restrictions have been placed on the bankrupt party there is exemption from future repayment of outstanding debts. How does halacha treat bankruptcy?
The relevant issues include:
The Gemora  rules that it is a "mitzvah" to repay one's debts.
The Rishonim  relate this ruling to various verses in Torah and the Minchas Chinuch  finds proof that this is a Torah obligation of biblical force (d'oraiso): one who does not repay his debts transgresses a Torah prohibition.
The mitzvah, whether it is of Rabbinic or Torah origin, entails that even if one cannot repay now, he is not exempted from repaying in the future. According to this, one who is declared bankrupt is not thereby absolved of his debts.
The Gemora  rules that the "law of the kingdom is law". Different reasons are given for this. The Rashbam  writes that when people live in a country they have willingly taken upon themselves the laws of the King.
The Rashba  - and the Alter Rebbe  agrees to his reason - writes that the king owns the land and has the right to deprive of benefit from his land anyone who does not abide by his laws. Accordingly, anyone living on the king's land and not abiding by his laws, is using the king's land against his will, which is tantamount to stealing.
The Poskim state that the laws of present day democracies are also binding according to halacha for the above reasons. There is a difference of opinion, however, as to the extent of the authority given by Torah to secular law.
The M'chaber  states that this authority is limited to those laws directly benefiting the government, such as taxes. According to this, the laws of bankruptcy have no authority as they do not directly benefit the government.
The Remo  argues that this authority extends to any law which benefits the public.
The Chelkas Ya'acov  writes that the rule of dina d'malchusa dina does not extend to the laws of bankruptcy even according to the Remo. They do not benefit the public in that they steal money from creditors by absolving debtors from repaying; and by so doing pose a disincentive to potential lenders. Apart from these considerations, the Shach  rules that any secular law which contradicts Torah law has no authority and one cannot apply to it the rule: that "the law of the kingdom is law". Since the laws of bankruptcy do contradict Torah law (as mentioned above) the laws of bankruptcy will not apply according to halacha.
The Shulchan Aruch  states that methods of agreement, which are not mentioned in halacha but are common business practices, such as the handshake, are recognized by halacha.
The Rashba  extends this rule to all monetary matters. The implication of this is that any business transaction is implicitly based on accepted practice, even if not explicitly expressed, for all are taken to have agreed to these practices.
The Pischei Choshen  (written by a contemporary dayan in Israel) accordingly rules that all company loans are conducted according to the common business practice and so the laws of bankruptcy apply. Private loans, however, are not considered as business transactions, rather as private transactions which are not necessarily based on common business practice. Where, therefore, in individual cases, the lender will not necessarily have these conditions in mind, secular bankruptcy laws would not apply.
The Shulchan Aruch  states that when parties to a dispute come before a Beis Din (Jewish court), the judges should try to bring the parties to a compromise (p'shora). If the parties agree to a compromise and perform an act (kinyan) giving effect to their agreement they are bound by it and cannot retract. A verbal agreement, however, can be retracted by either party.
The Poskim  rule that if the lender and borrower agree to settle according to the secular law of bankruptcy, then this is an halachically binding compromise. Accordingly, if a kinyan is made, both parties are bound by it and the lender cannot subsequently collect the rest of his loan, even if the borrower acquired the means to repay it.
This would apply also to private loans.
The debtor can be absolved of his loans through the law of bankruptcy in one of two ways:
 Ketuboth 86a
 see Rashi there; Ramban Baba Batra 174a; Responsa Radvaz Vol2:610
 Mitzvah 259
 Gittin 10b; Nedarim 28a; Baba Batra 54b
 Baba Batra 54b
 Nedarim 28a
 Laws of Stealing, Ch 15
 Choshen Mishpat, Ch 68:1
 ibid 9
 Responsa, Choshen Mishpat 32
 Choshen Mishpat, Ch 73:36,39
 Choshen Mishpat, Ch 201
 Responsa, Vol 2:268
 Laws of Lending, Ch 12
 Choshen Mishpat, Ch 12
 see responsa Avnei Tzedek Choshen Mishpat 2; Minchas Elazar Vol 3:31; B'tzail Hachochma Vol 3:123
The above is not intended to decide halachic questions, but rather to clarify them in a clear and concise form. Please refer all your practical questions to your local Rabbi.
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