Bankrupt

The concept of forgivable bankruptcy–declaring one’s self legally destitute and thereby being forgiven of one’s major debts, is a recent development in history. Until the mid-1800s (in the United States), those unable to repay their debts were sent to debtors’ prison.

Without question, falling into debt is frowned upon by the Torah. At the same time the Torah encourages lending to the needy. In fact, it’s a mitzvah. The Torah also has quite a few unique laws relating to lending and debts. Most importantly, “At the end of every seven years you shall institute a remission… every creditor shall remit his authority over that which he has lent his fellow; he shall not demand it from his fellow or his brother…” (Deuteronomy 15:1-2). Every seven years, the year of the shmitta (Sabbatical year), when the farmland lies fallow, all monetary debts that are currently due are forgiven.

Was shmitta the world’s first forgiving bankruptcy law? Perhaps.

Aware of human nature, the Torah also declares, “Beware that there be not a base thought in your heart, saying: ‘The seventh year, the year of release, is at hand’; and your eye becomes evil against your needy fellow, and you give him nothing…” (Deuteronomy 15:9). After all, who would want to lend money just to have the debt erased by shmitta.*

There are many Torah prohibitions against forcing the repayment of debt. For example:
“When you lend money to My people, to the poor man among you, do not press him for repayment….” (Exodus 22:24). “Do not take an upper or lower millstone as security for a loan, since that is like taking a life as security” (Deuteronomy 24:6).

The laws that seem to favor the negligent borrower are numerous because of the potentially overwhelming power of the lender. Underlying each of these laws, however, is the understanding that borrowers may not simply walk away from their debts but must make a good faith effort to fulfill their financial obligations.

*The sages also created ways in which
creditors would be protected.