What are the decrees of borrowing and bankruptcy in Islamic law? In Germany, those who go bankrupt are relieved of their debts six years after bankruptcy.

The Details of the Question
When the people in Germany cannot pay their debts, they go bankrupt. When they go bankrupt, they cannot buy anything on installments. Six years later, all of their debts are removed and they become free of debt. What is the decree of our religion on it?
The Answer

Dear Brother / Sister,

In Islamic law, debtors are divided into three: 

a. Those who are financially well-off but do not want to pay their debts;

b. Those who are in financial trouble and who do not have any wealth;

c. Those whose debts are equal to their property or whose debts are more.

If a person in the last group cannot pay his debts in time and his existing wealth is less than his debts, the issue of bankruptcy occurs.

According to Abu Hanifa, even if the debt of a person is more than his wealth, this person cannot be put under interdiction (hajr) due to his debts. For, he is fully qualified since he is sane; it is possible for him to increase his wealth through a successful operation. Thus, his freedom of disposition and humanity will be protected. However, in that case, he is ordered to pay his debts. If he does not do so, he is imprisoned so that he will sell his property and pay his debts. The judge cannot sell the property of the debtor. However, he can give his money and his goods of the same kind of his debts to the creditors through istihsan (judicial preference). The reason for imprisoning the debtor is harming and wronging the creditors because of not paying his debts. (al-Maydani, al-Lubab, II/20; az-Zuhayli, al-Fiqhul Islami wa Adillatuh, lV/132)

According to Abu Yusuf, Imam Muhammad, Shafii, Malik and Ahmad b. Hanbal, the debtors whose debts that are due are more than their wealth are put under interdiction by the judge upon the wish of the creditors. This person is regarded to have bankrupted. Malikis do not regard the decree of the court necessary in that case. With interdiction, the transactions that will harm the rights of creditors will be prevented. Transactions like giving property to foundations, donating, giving as charity, entrusting to guardianship, accepting paying debts to somebody else, etc are not valid unless the creditors give permission. If they sell something at market value, the money belongs to the creditors. If the sale is below market value, it depends on the permission of the creditors. The buyer is free to complete the market price or annul the purchase. (Ibn Abidin, Raddul-Muhtar, V/101; Abdülkadir Şener, "İslâm Hukukunda Hacr", A.Ü.İ.F. Periodical, Vol. XXII, p. 339)

Regarding transactions like this, the qualification of the debtor is like a mumayyiz child (above 7 but not of full age). His financial transactions that can harm his creditors are based on their permission. It does not matter whether these transactions are grants like donating and giving property to foundations or onerous contracts that include tolerance in the sale price like selling something below market price or much higher than market price.

The judge sells the property of the debtor who does not pay his debts and divides the money among the creditors. Perishable goods are sold first. Then, vulnerable goods and finally real estate are sold. However, the judge cannot sell the food, clothes, house and similar basic needs of the debtor and his family. (Ibn Abidin, V/103; Damad, Majmaul-Anhur, II/443)

According to Abu Hanifa,  if the judge imprisons the debtor for two or three months, does not see any signs that he has any property or it is understood that he is really poor, he is freed based on the following verse:

"If the debtor is in a difficulty grant him time till it is easy for him to repay." (al-Baqara, 2/280)

However, the creditors follow him. If he becomes rich enough to pay his debts, the creditors will share his wealth. According to Abu Yusuf and Imam Muhammad, poor debtors are not followed until it becomes clear that they have acquired new property. For, the verse above demands some time to be given to them in order to work and earn money. (al-Maydani, ibid, 21-23)

This vast freedom, given by Abu Hanifa to the debtors, was misused in the course of time; debtors sold their property to their friends or relatives, donated them to a foundation or their children, etc in order to escape from creditors. The fiqh scholars that came later issued fatwas stating that the debtors whose debts are more than their wealth cannot donate their property unless their creditors agree even if they are not under interdiction. Ebussuud Efendi, who was the sheikh al-Islam during the reign of Sulayman I and Selim II, stated this issue clearly in the letter that he gave to the sultan. (Hamdi Döndüren, Delilleriyle İslâm Hukuku, İstanbul 1983, p. 144)

If a person who is the protection of any state really goes bankrupt, he is not held responsible for the transactions done in accordance with the rules of that state and he is relieved of his debts.However, if he has not bankrupted but pretends to go bankrupt, or if he earns money but hides it, he will violate people's rights and be held responsible. It is necessary to act according to those criteria.

Questions on Islam

Was this answer helpful?
Questions on Islam
Subject Categories:
Read 926 times
In order to make a comment, please login or register