By: Rabbi Ari Enkin
As a general rule, one who declares bankruptcy is then exempt from having to pay back any outstanding debts. Ever. While deals and agreements are often made in which the debtor pays back a portion of what he owes, this too may not be truly required. Although halacha does not include a bankruptcy clause of its own, especially not one which inherently frees one from debt, it does seem to accept most of the legal consequences of bankruptcy law.
What is not completely clear, however, is if one who declares bankruptcy and later becomes wealthy will be required to repay the debts from his “previous life”. Are those who previously agreed at the time of bankruptcy to accept only a portion of what they were owed entitled to later sue for the remaining monies? (Note: This essay only relates to a situation where a person who declared bankruptcy was truly penniless at the time. It does not apply to a person who declared bankruptcy but remained financially secure from other sources).
Although not unanimous, most halachic authorities seem to rule that bankruptcy is final and the debtor will not be required to pay back past debts should he become wealthy later on. This is especially true if all the closing financial agreements were made in accordance with halacha, such as by means of an official kinyan and the like. It goes without saying, of course, that all such settlements and proceedings must be carried out in accordance with civil law (“dina demalchuta dina”), as well. All the above is true because halacha accepts the authority of business practices that are governed by the civil authorities as well as common custom. As such, one who chooses to engage in trade, commerce, and other business pursuits implies an acceptance of all the rules and regulations that govern it, including the bankruptcy clause.
Furthermore, some authorities maintain that once a lender has despaired of being paid back (“ye’ush”) there is no obligation to do so even if one will later have the money to do so. Nevertheless, from the perspective of middas chassidus and peshara, it is very meritorious to make an effort to offer some form of compensation and appeasement to one’s creditors. Our sages teach that repaying one’s debts is a moral obligation.
A number of authorities disagree, however, and rule that a debtor will be required to pay back all outstanding debts should he have the means to do so at a later date. According to this approach, the clause of dina d’malchuta dina is not applicable to this aspect of bankruptcy, nor does it ever apply to erase debts and loans between Jews. It is further noted that creditors do not truly forgive monies owed to them when a debtor goes bankrupt – they merely take for themselves whatever they can. They never truly waive the right to claim their money in the future.
It goes without saying, of course, that one who plans his “bankruptcy” simply in order to evade debts and responsibilities, with the intention of soon returning under a different name, is nothing but a swindler and a thief. In such a situation proceedings can and should be taken against such an individual when he returns from his “bankruptcy”. All of the above applies only to debts accrued during the course of business and generally only in transaction between registered companies and corporations. A personal loan must always be paid back regardless of all other considerations and halacha does not recognize a declaration of bankruptcy to exempt one from paying it back.
 Avnei Tzedek, CM 2; Chatam Sofer, CM 44; Beit Yitzchak, YD 2:75:5; B’tzel Hachachma 3:124; Minchat Elazar 3:31. See also: Igrot Moshe, CM 1:72.
 CM 201.
 Rashba 2:268; Pitchei Choshen Chapter 12.
 CM 163:3; Teshuvot V’hanhagot 2:701; Imrei Bina 2:4 (geviat chov).
 Ketubot 86a with Rashi; Ramban, to Baba Batra 174a; Minchat Chinuch 259 Ahavat Chessed 2:24.
 Chavatzelet Hasharon 81; Chelkat Yaakov 3:160.
 CM 98:1, 262:5; Chacham Tzvi 144; Minchat Yitzchak 3:134.
 B’tzel Hachachma 5:114.
 Pitchei Choshen Chapter 12