Bankruptcy and Ethics

Whether an honest bankruptcy is ethical depends upon the source of ones ethics.

It depends on how one defines right and wrong. This is obviously true for all ethical questions: that which defines what is ethical (what is right and wrong) determines what right and wrong is.

If someone were to ask a banker if bankruptcy is ethical, the response may well be, "No, it is unethical." Because bankruptcy to a banker is generally sin. On the other hand, if one asks a Father who lost his job and has just spent his entire retirement and borrowed every penny he could to pay for medical care for his daughter - and still owes more - then you may discover a different opinion. We believe that bankruptcy is ethical for some and unethical for others.

Is bankruptcy ethical for you? In answering this question, consider whether you can pay your debts within a reasonable time. If so, then bankruptcy may not be unethical - and it is probably unnecessary. If you cannot pay your debts within a reasonable time, then bankruptcy is probably an ethical alternative.

In one sense, the new bankruptcy law has made the decision for us. It has defined what is reasonable and what is not reasonable by providing a formula based upon income, expenses and the amount of debt. This forumla must be applied in all Chapter 13 bankruptcies and all Chapter 7 bankruptcies for individuals. So, most people view bankruptcy as a reasonable alternative if they can qualify for it under the law. And they are probably correct, because the new bankruptcy law was authored by and passed through the efforts of the credit card companies. So, it represents their agreement as to when it is acceptable to discharge credit card debt.

But for many people this is not sufficient. Many people view bankruptcy as unethical by defninition. Many of these people look to the Bible and conclude that bankruptcy is unethical because it is the failure to fulfill an obligation. But this is incorrect.

What does the bible say about bankruptcy?

Bankruptcy was invented in the bible. It is the first recorded instance of a bankruptcy discharge in the history of mankind. And the bankruptcy in the bible is far more generous to the debtor than the current bankruptcy law. Bankruptcy in the bible is found in Deuteronomy 15. It provides for an automatic release of debt every seven years. There was no need to file a bankruptcy, no need to give anyone notice, no need to go to court. The law simply declared that all debts were released every seven years. So if God is the author of scripture, then God is the author of the release of debt (bankruptcy discharge). You may read more of the history of bankruptcy in Origin of Bankruptcy.

However, although these debts were released in the bible's bankruptcy, that does not mean that they went unpaid. They never went unpaid. It was just a question of who paid them. When they were not forgiven, the borrower paid. When they were forgiven, the lender paid. Either way the debt will always be paid.

The concept of debt forgiveness is mirrored in the message of salvation in Jesus Christ. Sin, like money debts, always has to be paid. It is just a question of who pays. But with sin, we cannot pay because the price is too high. Christ paid for the sins of the world when He died on the cross. This payment paid the penalty for sin. Only Christ can pay for sin. And the message of the bible is that if we accept (appropriate) the payment made by Christ by trusting in what He did on the cross, then our sins will be paid for and forgiven. This is called the gospel and it is not a theory. It is a reality that you can feel and live.

Charles Chesnutt