Respected scholars, as-salamu `alaykum.
Due to the financial crisis in the US, my company lost a lot of business and I cannot pay back the creditors because I am owed a huge sum of money. In addition, I believe this is the fault of the financial crisis, not me. What is the solution? Should I declare bankruptcy? And, what does declaring bankruptcy mean? What about the creditors’ debts?
Wa`alaykum as-salamu wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In his response to your question, Dr. Monzer Kahf, a prominent economist and counselor, said:
It was your decision to go into debt. When a man goes into debt he should have a plan to pay back the money. Debts do not go away on their own; they require payment. This is the Shari`ah position on debts and you have to pay them back.
It is true that certain unforeseen circumstances do happen, much more in business that with personal debts as seems to be your case. This may require consensual adjustments between creditors and debtors, or it may end up with bankruptcy. Such circumstances are also recognized in Shari`ah. However, they rarely apply to personal debts; this is why you find chapters on bankruptcy in most Arab laws in the commercial codes, not in civil codes.
I know that American laws permit bankruptcy for individuals, but the Shari`ah principle is that a debt should be paid back except in one case: where there is a real inability for payment both presently and in the foreseen future. In such circumstances, all existing assets must be distributed among the creditors in proportion to their respective debts. In this case only, are the remaining debts wiped out.
Consequently, I advise you that if you really cannot pay all your existing debts, you should negotiate with the creditors to reschedule the payments and then continue paying according to the new plan. Filing for bankruptcy is a final resort that should only be done under severe circumstances. I must tell you that I do not like your attitude when you said this situation is not your fault because putting yourself into debt is your fault; you must learn to live according to your resources, not according to the amount of money you can borrow!