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Scripture makes it clear that “the borrower is slave to the lender” as we read in Prov. 22:7.  That means that the individual that borrows money is now indebted, obligated, or responsible to the lender until all is paid back! But many people today cannot pay back their debts. Today, we kick off a short episode series where many Pastors, Christians (and possibly some angels) choose not to tread!   

We will be discussing a challenging stewardship concept, and giving you a Christian Perspective on Bankruptcy.


What does the Bible say about Borrowing?

In order to establish a Christian perspective on Bankruptcy, we could get deep into the passages of Deuteronomy, but let’s read this overview about borrowing money according to the Word of God (which is an excerpt from Wayne House’s book, Christian Ministries and the Law:

“It is apparent from Scripture that God never intended for man to live in this way (under constant borrowed-money…under debt). God’s ideal, set down in the Old Testament, was a society where loans were kept at a minimum by force of law, and gratuity and charity by force of law were kept to a maximum. To accomplish this end God did not outlaw borrowing and lending but instead greatly limited what could be done to a debtor who could not repay. He permitted the loan to take place and the consequent obligation to repay to arise, but he limited the legal obligation to repay to a maximum of seven years only. Every seventh year all lenders were to release their debtors from their debts. The debtors were to be no longer legally obligated to repay the debt. The debtor was free, and by force of law the creditor had made a gift: “At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’s release” (Deut. 15:1, 2).”

 

God’s Focus on Borrowing

Again, from Wayne House’s book, Christian Ministries and the Law:

“Under God’s plan it is the creditor who is given the onerous commandment to lend and to give without hope of repayment, not the debtor who is punished because he cannot repay. There is a stark contrast between this approach and the laws of the Romans or the laws of the English. The approach in the Bible is precisely the opposite of the prevailing world view. In Scripture it is the debtor who is more important than the debt, rather than the debt being more important than the debtor. In Scripture it is forgiveness of debt and charity that are stressed and required, not repayment.

With the introduction of interest and interest upon interest, and penalties for failure to repay, the world at large, in contrast to the principle set forth in Scripture, is effectively regaining repayment without lending. God, on the other hand required lending without repayment: gifts. The exacting of any interest from a poor borrower was against Old Testament law (Lev. 25:37).”

Leviticus 25:37 – You shall not lend him your money at interest, nor give him your food for profit.

Well, clearly with our loans and debts of today, we clearly are not living under what the Word of God laid out about borrowing.  With this very brief biblical understanding of God’s purposes of borrowing money, we know that just as in biblical days, today is no different.  People borrow more money than they can repay, or “life happens” and their ability to pay back the borrowed amount is the least difficult, if not impossible in their view.  We don’t have the blessing of “forgiveness of debt” built into our society, but we do have a legal means called “bankruptcy.”



Why on a Christian finance podcast would we ever want to talk about Bankruptcy?

Because bankruptcy, whether we like it or not, as we mentioned earlier, is part of the world in which we live. So we need to think, before we ever get close to it, why would one ever go into bankruptcy? What should one do if they have declared bankruptcy? What should we think about bankruptcy in general? How do we deal with the consequences of past choices?

 

What is Bankruptcy?

According to USCourts.gov

  • “Bankruptcy helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect financially troubled businesses. This section explains the bankruptcy process and laws.”

Three types of bankruptcy https://www.investopedia.com/articles/pf/08/bankruptcy-filing.asp

  • Chapter 7 bankruptcy, a court-appointed trustee will sell off your personal assets (except for those that qualify as exempt) and use them to pay your creditors.
  • Chapter 11 is a type of bankruptcy that is typically used by businesses rather than individuals. Businesses can also file for bankruptcy under Chapter 7. Chapter 11 allows the business to reorganize rather than simply be liquidated.
  • Chapter 13 bankruptcy allows you to keep more of your personal assets than in a Chapter 7 bankruptcy, but you must agree to repay your creditors over a certain period of time and adhere to that plan.

In order to establish a Christian perspective on Bankruptcy, we need to answer a few questions…

 

Is Bankruptcy Sin?

While declaring bankruptcy itself is not necessarily a sin, sin and or a lack of wisdom almost always precedes bankruptcy. Declaring bankruptcy could be a sin if you’re using it as a way of avoiding paying back that which you borrowed, or a quick fix to an overly luxurious lifestyle. Bankruptcy may be a necessary course of action for those whose fortunes have changed, preventing them the ability to repay.

 

Why would someone declare bankruptcy?

A few reasons someone might declare bankruptcy include unaffordable debt or medical bills, or even a dramatic loss of income.

100% of people who have gone through bankruptcy had debt. Liabilities create the need for bankruptcy. There are very few times when we would ever recommend bankruptcy. There has to be no way to survive and meet your needs without it.

 

Advantages of Bankruptcy

  • Relief from dealing with multiple creditors
  • Can prevent further legal action
  • Given legal representation in the courts
  • Debts may be settled for less than what you owe
  • You could get a fresh start

 

Disadvantages of Bankruptcy

  • Messes with your credit for up to 10 years
  • Expensive
  • May have to give up assets like house, certain luxury clothing, etc
  • Harder to borrow again in the future (High interest, low credit)
  • Federal Student Loans cannot be bankrupted.. You still owe!
  • Joint account holders are impacted as well.
  • Bankruptcies are publicly reported
  • Harder to qualify for a mortgage in the future
  • Bankruptcies CANNOT be undone.
  • Your character, reputation, and word have been tarnished. You made a promise that you couldn’t keep.
  • Marriage under pressure. 
  • Emotional and psychological damage. Here are some common effects:
    • Stress and Anxiety
    • Depression and Shame
    • Loss of Identity and Self-Worth
    • Fear and Uncertainty
    • Social Isolation
    • Loss of Hope and Motivation
  • It is important to note that the emotional and psychological impacts of bankruptcy can vary from person to person. Seeking support from friends, family, support groups, or mental health professionals and those within the church (Pastors/Elders, etc) can be beneficial in navigating these challenges and promoting emotional well-being.

 

A Christian Perspective on Bankruptcy

Should a Christian ever declare bankruptcy?

As we try to answer this question and present a Christian perspective on Bankruptcy, our answer is: It depends! The reality is, that you have a moral obligation to pay back that which you borrowed. However, bankruptcy provides the opportunity for you to get out of the legal obligation of repaying the debt (depending on which kind of bankruptcy you enter, and what kind of dept you have). 

  • Chapter 7 – Liquidate everything, pay off what can be paid off, and move on. This is more problematic from a Christian perspective.
  • Chapter 13 – Restructure terms, and still pay off debt. Might be more sensitive to Christian sensibilities than Chapter 7. The “lesser of two evils”

Just because you have charged off the legal duty to pay, does not mean that you have charged off the moral obligation to repay. Our moral obligation is to repay our lenders. 

 

Assets that are exempt from (YOU CAN KEEP) bankruptcy include:

  • Veteran’s benefits
  • Retirement accounts
  • Unemployment benefits
  • Wages you earn after you file for bankruptcy
  • Money you receive from alimony and for child support
  • Social security benefits
  • Life insurance
  • Monetary awards from a personal injury case
  • Crime victim awards
  • A wildcard claim, which allows you to protect something that isn’t covered by another exemption.

 

Generally, non-exempt (YOU CAN LOSE) property in Chapter 7 bankruptcy can include:

  • Any secondary residential property that isn’t your primary home, such as a vacation house
  • A second car, unless you are filing jointly, in which case each filer can claim an exemption for a car
  • Investments other than retirement accounts
  • Recreational vehicles such as boats or ATVs
  • Valuable art that isn’t of your own making
  • Luxury clothing such as a fur coat
  • Extra televisions
  • Valuable jewelry
  • Expensive collections such as coins or stamps, or other hobby equipment
  • Family heirlooms
  • Musical instruments that aren’t critical to your income

 

What can you discharge in Chapter 7 Bankruptcy?

  • Obligations under a lease or contract
  • Credit cards
  • Personal loans
  • Medical bills
  • Unsecured debts

 

Stewardship Application

To close out this episode on a Christian perspective on Bankruptcy, let me read the words of Wayne House, from his book Christian Ministries and the Law:

  • “A bankruptcy is an effective means to deliver a debtor from an impossible debt and to break the cycle of borrowing. It will not, however, cure the debtor of the habits of an unscriptural lifestyle. Bankruptcy, if it occurs because of consumer borrowing, is something that should happen no more than once in a lifetime, if then. It should be a means to change and to adjust to a way of life based on the reality of ownership rather than the fiction of borrowing. It should be used in conjunction with a decision to live without incurring debt, and this decision should be the primary focus of the pastor who counsels those of his congregation who find themselves enmeshed in the snares of consumer debt. A bankruptcy should be the end of something and the beginning of something. It should be the end of an overwhelming debt burden and the beginning of a new way of life. If it does not signal the beginning of something, then it may well signal the end of something, because once a bankruptcy is filed, it may not be available for quite some time in the future.”
    • 9 11 USC § 727(a)(8). This section provides that no debt can be discharged if the debtor has previously obtained a discharge under Chapter 7 within six years before the filing of his petition.
    • House, H. Wayne. Christian Ministries and the Law. Ed. Revised edition. Grand Rapids, MI: Kregel, 1999. Print.

 

Next Steps

 

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