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QUESTION: Is Bankruptcy Moral or Immoral?


[The following question came to me via The Question Box on our church’s website where I answer questions.]

Is bankruptcy moral or immoral? If it is immoral and a family decides there is no other way out of debt and declares bankruptcy (knowing it is immoral) can they still be saved?

In our financially troubling times, this question must be confronting many conscientious believers.

Actually, you have two questions:

  • Is it immoral to declare bankruptcy?
  • If it is, and you know it is, and you declare bankruptcy anyway because you decide there is no other way out of debt, will God still forgive you?

Is Bankruptcy Immoral?

Debt has been a problem in American culture for a long time, at least for my entire lifetime. There is a general principle in the Scriptures that we should, in most cases, live without debt.

When we put ourselves into debt, we put ourselves into servitude, or slavery, to the person we owe. “The rich rule over the poor, and the borrower is servant to the lender” (Proverbs 22:7, NIV). It is interesting to me that this comes immediately after the wise man charged us, “Train a child in the way he should go, and when he is old he will not turn from it.” Few Americans train their children to avoid debt if they want to maintain freedom.

In Romans 13:8, Paul wrote that we should “Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.” The combination of love and debt in this verse reminds us of the “Golden Rule,” which teaches us to do to others as we would have them do to us (see Matthew 7:12 & Luke 6:31). If someone owed you money, what would you want the person who owed you to do?

Psalm 37:21 says, “The wicked borrow and do not repay, but the righteous give generously.”

On the surface, these Scriptures show that God certainly expects His people to repay their just debts. There were, however, in the Code of Law given by God through Moses at Mount Sinai provisions for erasing debt. Deuteronomy 15:1 says simply, “At the end of every seven years you must cancel debts.” A vestige of this has come down to us in law that says if you declare bankruptcy, you cannot do so again until at least seven years have passed. This was a provision God made so that the poor among his people would not become more and more wretched in their poverty, but would have the opportunity to start over with a clean slate after seven years. This law meant that there was no such thing as long-term debt under that law. There would be no 30-year mortgages, for example.

So, where does that leave you? Under American law, bankruptcy is an option. However, your question has to do with the moral law of God, not with American law. There are things that are legal but are immoral. What about bankruptcy?

I think you already know the answer to your question.

The whole tenor of Scripture is against unilaterally trying to avoid paying your debts. In the Parable of the Unmerciful Servant (Matthew 18:21-35), both debtor servants asked for time to pay the debt. Many lenders are also open to arrangements for delayed or even partial payment in lieu of bankruptcy. Businesses have this option open to them in a “Chapter Eleven Bankruptcy.” Under this option, the business continues to operate, but under the oversight of the court. The court will reorganize the business by modifying some contracts and eliminating some debt. The purpose of this is to be fair to all creditors while keeping the business going.

Some Christian debt counseling services undertake similar oversight for individuals facing potential bankruptcy. The Crown Financial Ministries is a Christian related group dedicated to teaching God’s plan for financial security. They have trained debt counselors in many parts of the country. Go here to find more information or a debt counselor in your area.  I have taught their small group program several times with great success. It is entirely possible that they can help you resolve your difficulty without declaring bankruptcy. Do not decide too quickly that bankruptcy is your only “solution.”

I can conceive of a situation where bankruptcy would be appropriate. This, however, would be an exceptional case that would in no way “prove the rule.”

Will God Forgive Bankruptcy?

God can forgive the sin of bankruptcy. As with any sin on the part of the Christian, it demands repentance, confession, and prayer to our loving Father who receives the Prodigal home.

There is great danger, however, in doing something you know to be sin while planning to “get forgiven” later. This abuse of grace and attempt to manipulate God will damage your soul, perhaps even “beyond the point of no return” to God. The problem would be in the damage to your own soul. God is willing to forgive any person who truly seeks to return to Him. The person He will not forgive is one who is either unwilling or unable to repent because deliberate sin has hardened his heart too much. You need to reflect on Hebrews 10:26.

Repentance would demand that we learn to live within our means. Most people do not declare bankruptcy because they have no income; rather, it is because they have been prodigal and reckless with the income they have. The book, Debt Free Living by the late Larry Burkett, has examples of this that are very instructive. Repentance also demands that we recognize God is interested in how we use our financial assets – because this points to the focus and priorities of our lives. In this, we must come to recognize that every spending decision is a spiritual decision. Repentance also means learning to trust God in our financial decisions.

Confession means we must acknowledge to God and to ourselves that we are responsible for our spending decisions and that our pattern of spending that led us into bankruptcy is itself bankrupt and without Christ-likeness. It is confession such as this that can lead us to the change of life necessary to develop new patterns of financial behavior.

Our prayer to the Father for mercy must include a plea that He teach us His ways and help us walk in them. Our prayers will be for forgiveness, not only for the bankruptcy, but frequently for the sins that led to this dire step.

Please do not think this response is harsh. God is merciful. His Spirit is willing to lead you, even in financial matters, but you must listen to what God has to say about you and your money. The way back from the financial depths is not necessarily an easy one, with or without bankruptcy. However, you can walk this path with God’s help. The guidance of a concerned counselor can also help. This counselor must understand, not only the ways of finance and law, but also know God’s plan for you and your money.

I hope these words will help point you to a successful way out of your difficulty. May God bless you over the months and maybe even years to come as you extract yourself from your financial problems.

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2 Responses

  1. Good ! Very helpful!

    • Paul,
      I was just looking through my “comments” and saw yours – which I had previously approved for posting, but had not replied to. It’s good to hear from you again after all these years. I am hoping to get back to Harding this Fall for my 50th anniversary celebration. Those were good years worthy of revisiting – even though I did not “find myself” until later in life. At that time I was mostly being the dutiful elder son as Tim Keller would have put it in a book I’m currently reading The Prodigal God. An excellent read, by the way! One day, I’ll probably review it in this blog.
      Jerry

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