Is it ethical to declare bankruptcy?
Introduction
The Bible is clear that Christians should strive to be wise stewards of their resources and should avoid the bondage of debt: “The rich rule over the poor, and the borrower is servant to the lender” (Proverbs 22:7). When overwhelming debt becomes unmanageable due to unforeseen hardship—like job loss, severe illness, or economic collapse—the legal option of bankruptcy emerges, forcing a confrontation between financial reality and moral responsibility.
The question of ethics hinges on the intent and the circumstances surrounding the decision.
Main: Three Principles for Evaluating Bankruptcy
The Christian must evaluate bankruptcy not as a sin, but as a legal option that must be weighed against principles of integrity and stewardship.
1. The Biblical Precedent for Debt Release
The Old Testament recognizes that people will fall into unmanageable debt, and it provided a structured, God-ordained mechanism for relief.
The Sabbatical Year: God commanded that every seven years, debts were to be canceled: “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor” (Deuteronomy 15:1-2). This principle acknowledges that financial circumstances change and that perpetual debt can crush human dignity and capability.
A Tool for Restoration: Bankruptcy, in the modern sense, functions as a form of debt release. It is a legal framework designed to give a person a fresh start when repayment is physically and financially impossible, allowing them to return to productive stewardship.
2. The Unethical Use: Dishonesty and Recklessness
Bankruptcy is ethically wrong when it is entered into with dishonest motives or is the result of sinful recklessness.
Malicious Avoidance: It is sinful to take on debt with the intent to file for bankruptcy or to use the process to maliciously defraud creditors. The Bible condemns lying and fraud unequivocally (Colossians 3:9). Integrity demands that one makes every honest effort to repay a loan before considering discharge.
Reckless Stewardship: While God's grace covers all sin, declaring bankruptcy as a result of consistent, unrepentant financial recklessness, greed, or laziness is a failure of Christian stewardship. If the debt was accrued through excessive indulgence, gambling, or prideful consumption, the bankruptcy itself is merely the consequence of a deeper, unaddressed sin.
3. The Ethical Use: Unavoidable Hardship
Bankruptcy is ethically justifiable when it is a last resort taken to resolve genuine financial catastrophe.
Unavoidable Hardship: If debt is unmanageable due to circumstances outside one's reasonable control (e.g., medical expenses, business failure, sudden job loss), bankruptcy can be a morally sound choice that allows the Christian to stop hemorrhaging resources and resume providing for their family (1 Timothy 5:8).
Pursuing Integrity: Even when filing for bankruptcy, the Christian must be fully honest and transparent throughout the legal process. They should use the fresh start to commit to new, wise stewardship practices and seek ways to make amends or provide restitution to creditors in the future, if possible, as an expression of their renewed commitment to financial integrity.
Conclusion
Declaring bankruptcy is a painful admission of financial failure, but it is not inherently a moral failure for the Christian.
If you are considering bankruptcy, your focus must be on integrity, humility, and seeking wise counsel. Make every honest attempt to repay. If the debt is truly crushing due to circumstances beyond your control, accept the legal relief as a mechanism provided by God for a fresh start, and commit fully to being a more faithful steward going forward.
