Adapted for print from audio shiur delivered by Rav Yitzchak Grossman
Dan walked into the kitchen, peering at his gold watch, the arms pointed at 2 minutes to 8, “Baruch Hashem, supper time” he thought. Esther was already in the kitchen and after taking one look at his face, she knew there was something unusual going on.
Esther asked, “Is everything alright?” the response was, “yeah, yeah, don’t worry.” After hearing those magic words, Esther realized there really was something amiss.
After a few minutes of prodding the issue was clear from Dan’s blunt statement, “Should I just stop fighting already? Should I just give in? I could just declare bankruptcy; the company is an entity by itself, not tied to any of our assets, they won’t be able to touch any of our properties, they won’t even take away the Lexus.
How does the Torah view Bankruptcy, is it legalized theft or a legitimate opportunity for a fresh start?
Halachah has neither a native concept of bankruptcy nor, in general, any native statutes of limitation on the collection of debts,1 and many poskim rule that debts may be collected (at least by Ashkenazim) even after a shemitah year has elapsed, as there is a longstanding custom and tradition to ignoreshemitah and collect debts even in the absence of a pruzbul.2
When a debtor has insufficient assets to satisfy his creditors, Beis Din invokes a procedure called mesadrin le’ba’al chov, allowing the debtor to retain a very limited amount of assets essential for bare subsistence and basic employment, and transferring all the rest to his creditors.3 There is, however, no permanent discharge of debt, and any assets acquired by the debtor at any future point in his life can be seized by any unsatisfied creditors.4
American law, on the other hand, does allow a debtor to discharge his debts through bankruptcy, and for at least half a millennium, poskim have discussed the Halachic perspective toward various legal and customary arrangements that distributed a debtor’s limited assets among his creditors in a manner different from Halachah, or discharged portions of his debts, denying creditors their rights to collect the full amount due to them.
The literature considers two rationales for the acceptance of these arrangements that are potentially relevant to our situation: minhag,and dina de’malchusa dina.
There is a venerable Sephardic tradition endorsing a community’s generally accepted rules for the disposition of the assets of indigent debtors, based on the Halachic principle of minhag:“anyone who does business by default does business according to the custom”5 but while there is widespread consensus among successive generations of Sephardic poskim that we follow custom with respect to the distribution of assets among creditors,6 there is some dispute over whether this extends to rules stipulating a permanent discharge of (even a portion of) the debt.7
Some contemporary scholars suggest that the application of minhag should depend on context; while the parties to a commercial loan may expect it to be governed by bankruptcy law, a personal loan may carry different expectations.8
Dina De’Malchusa Dina
In the twentieth century, one encounters debate among the poskim over a second rationale for the acceptance of bankruptcy law: dina de’malchusa dina.9 The crucial questions are whether the law satisfies the standard (itself controversial, and by no means universally accepted as normative) of being “for the benefit of citizens of the country”,10 and whether it is considered to be in direct contradiction to Halachic norms and ideals, which manyposkim consider grounds for a law’s rejection.11
In the general debate over the application of dina de’malchusa dina to well-meaning legislation passed by modern democratic governments for the benefit of society, we find remarkably divergent attitudes among the poskim.
It is illuminating to consider the spectrum of perspectives toward rent control legislation, for example: one viewis most enthusiastic, terming it “yashar, mesukan u’me’kubal”, and arguing that its discrimination in favor of the dwellings of the poor as opposed to luxury housing “does not diminish the power of the law, but increases it, and tilts it toward a position of yosher”.12
The opposing perspective is deeply skeptical however, noting that “it is known to us that the primary support for this law comes from some [parliamentary] representatives who have the views and doctrines of the Communists and Socialists, to squeeze the rich and take their money, and all these doctrines are against da’as Torah”,13 and arguing that the law should not be considered for the benefit of society as a whole, since it just favors one class (tenants) at the expense of another (landlords): “it is true that for the tenants it is a favor and benefit, but to the homeowner-landlord it is an injury and deficiency, that another man uses his [property] against his will, and why shall we take the perspective of the tenants to call it a benefit, take the position of the landlords, that the house and the shop is theirs, and it is an injury”.14 Similar considerations may apply to our topic.
While Halachah has no native concept of bankruptcy, there is a well-established tradition of accepting established secular bankruptcy law and custom based on the rationale of minhag, although some poskim limit this to rules for the distribution of the debtor’s assets, but not to a right to discharge debt. Moreover, the entire discussionof minhag may not be relevant to a case of a personal loan. There is also debate over the applicability of dina de’malchusa dina to bankruptcy law.
Le’Halachah, a person who is muchzak can plead kim li that he is not responsible for his debt, although he may still have an obligation to pay la’tzeis yedei shamayim, as there is a definite obligation and only a doubtful exemption from it (eini yodea im paraticha).15
It goes without saying (although some poskim say it anyway) that bankruptcy protection can certainly not be invoked where a chilul Hashem will result.16
1A widow who does not collect her Kesuvah within twenty five years of her husband’s death is presumed to have waived her claim (Shulchan Aruch Even Ha’Ezer 101:1), but this is the exception that proves the rule that in general, debts may be collected indefinitely, as there is no presumption of waiver (ibid. Choshen Mishpat 98:1).
2See Shulchan Aruch ibid. Rema seif 1, Shut Igros Moshe Choshen Mishpat II:15.
3Ibid. seif 23.
4There is debate over the applicability of the concept of yeush (the abandonment of hope of recovering one’s property) to debts – see Shut Maharik shoresh 3, Shulchan Aruch Choshen Mishpat 98:1, Rema ibid. 163:3, Ketzos Ha’Choshen ibid. seif katan 1, Imrei Binah (Gevias Chov) siman 4, Pischei Choshen (Halva’ah) Ch. 2 seif 29 and n. 73; a discussion of this issue is beyond the scope of this article.
5The discussion begins with a pair of responsa in Shut Maharshach (2:113; 3:8) ruling that we follow the custom, and see the sources in the following notes.
6See, e.g., Shut Masas Moshe Choshen Moshe #62, Shut Pleitas Beis Yehudah end of #21 (s.v. Kol zeh kasavti), #22 s.v. (Ve’gam mah she’pasak ha’chacham ha’na’aleh), Shut Divrei Yosef (Irges) #21 p. 42a s.v. Ashivcha, Dinei Mamonos Chelek 1 Sha’ar 3 Perek 5 n. 17 p. 71.
7R. Refael Yosef Chazzan (Shut Chikrei Lev Choshen Mishpat I:65) suggests that Maharshach’s endorsement of custom is limited to arrangements for the distribution of the debtor’s assets among creditors, but does not extend to a discharge of his debt. Two of R. Chazzan’s own sons, however, deny that this is his intention (R. Chaim David and R. Eliyahu Rachamim Chazzan, in Shut Nediv Lev #12 and #13, respectively), noting that some of the earlier followers of Maharshach (including Divrei Yosef and Masas Moshe)explicitly apply his position to discharges based on custom. Opposing them is their nephew, a famous grandson of the Chikrei Lev, R. Chaim Palagi, who strongly argues that such a custom flatly contradicts Halachah, constitutes theft and should not be respected (Shut Chikkei Lev Choshen Mishpat #31 p. 134b s.v. Be’ofen ki alah be’yadeinu). See also the earlier analysis of the responsum of Chikrei Lev by R. Palagi’s correspondent R. David Halevi Karaso (#30 p. 130b s.v. Ve’ra’isi le’ha’rav ha’gadol), and R. Palagi’s Masa Chaim, Kelalei Minhagim p. 48b #21.
8R. Shmuel Fuerst, reported by Rabbi S. H. Resnicoff, Bankruptcy – A Viable Halachic Option?, originally published at XXIV Journal of Halacha & Contemporary Society 5 (Fall 1992), and available in slightly revised form at http://www.jlaw.com/Articles/bankruptcy.html [this masterful and comprehensive article is the best treatment of our topic that I have seen], and Rabbi Yitzchok A. Breitowitz, Bankruptcy: A Halakhic Perspective, available at http://www.jlaw.com/Articles/bank.html.
9R. Moshe Feinstein rules that it does (Shut Igros Moshe Choshen Mishpat II:62), while R. Ya’akov Breish rules that it does not (Shut Chelkas Ya’akovIII:160 / Choshen Mishpat #32). R. Resnicoff reports that R. Moshe Heinemann told him that he believes that the rules governing distribution of assets are valid under the principle of dina de’malchusa dina, as they meet the standard of Rema (see following note and accompanying text), but that he is unsure about discharge law, and he notes a report by R. Feivel Cohen that R. Shlomo Zalman Auerbach held that bankruptcy discharge is notHalachically valid.I am bewildered by the emphatic ruling appearing in two separate places within R. Yechiel Tauber’s excellent Meishiv Ba’Halachah(siman 86 p. 131 and siman 96 p. 145) flatly insisting that “bankruptcy law has no source in our Holy Torah and we do not say with regard to it dina de’malchusa dina”, offering as sources the aforementioned rulings of Chikrei Lev and Masa Chaim, as well as a responsum of Chukos Chaim (Choshen Mishpat #22). But as we have seen, Chikrei Lev’s position is the subject of debate, and while R. Chaim Palagi does indeed strongly oppose the recognition of bankruptcy discharge, numerous other distinguished Sephardic authorities disagree, as does R. Moshe Feinstein.
More contemporary discussion of Halachic perspectives toward bankruptcy law and statutes of limitation on debt collection can be found in Pischei Choshen ibid. nn. 63 and 72 respectively.
10Rema, Shulchan Aruch Choshen Mishpat end of siman 369.
11See, e.g., Shach Choshen Mishpat siman 73 seif katan 39.
12R. Yosef Eliyahu Henkin, Kisvei Ha’Gaon R. Y. E. Henkin, Vol. II Teshuvos Ivra siman 96. Other poskim accept rent control legislation as binding based on minhag: Erech Shai Choshen Mishpat 312:5, Shut Igros Moshe Choshen Mishpat I:72 and II:55, Shut Ateres Shlomo Even Ha’Ezer ve’Choshen Mishpat siman 88 os 5 p. 380. See further Shut Imrei Yosher Vol. II #147 s.v. Hinei and #152.2; Shut Dovev Maysharim I:76 s.v. Ve’gam;Shut Yaskil Avdi VI Choshen Mishpat #8; Shut Devar Yehoshua 6:14; and the sources in the next two notes.
13Shut Chavatzeles Ha’Sharon (II Choshen Mishpat #8 s.v. Ve’nireh de’ha’rav mi’Tarna zal).
14Shut Maharshag III:125, and see also Shut Ohel Yehoshua II:10-11.
15See Pischei Choshen ibid. seif 33 and n. 83.
16Dinei Mamonos Chelek 2 Sha’ar 1 Perek 16 n. 21 p. 77