The History of Bankruptcy, by ret. Judge Randolph J. Haines, Arizona bankruptcy judge
What the Bible Teaches Us
So many of my clients feel embarrassed and self-conscious about the possibility of filing for bankruptcy. I remind them that the Bible encourages forgiving debts and that this principle is the foundation for our bankruptcy laws. The theory of consumer protection has been around since the time of Moses –
• Do not mistreat any widows or orphans.
• If you lend money to a poor person, do not charge any interest.
• Do not mistreat any foreigners among you.
• Leave part of your harvest in the fields for the poor to glean.
• Do not spread false rumors.
• Do not give false testimony in court.
• Make no false accusations.
• Do not accept bribes.
• If you take a poor man’s cloak as surety for a loan, give it back to him when he needs it to keep warm.
• If your enemy’s animal is running loose, return it safely to him.
Leviticus – “If a fellow Israelite living near you becomes poor and cannot support himself, charge no interest on any money you lend him and take no profit on any food you sell him.
• In Ancient Greece, bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into “debt slavery”, until the creditor recouped losses via their physical labor.
• In the Torah, or Old Testament, every seventh year is a Sabbatical year wherein the release of all debts that are owed by members of the community is mandated, but not of “foreigners”. But every 49th year, the Year of Jubilee, the release of all debts is mandated, for fellow community members and foreigners alike, and the release of all debt-slaves is also mandated. The Year of Jubilee is announced by the blowing of trumpets throughout the land of Israel.
• In Islamic teaching, according to the Quran, an insolvent person was deemed to be allowed time to be able to pay out his debt. “And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew.”
• Philip II of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. Spain became the first sovereign nation in history to declare bankruptcy.
• In England, The first recognized piece of bankruptcy legislation was the Bankruptcy Act 1542. Bankrupts were seen as crooks, and the Act stated its aim to prevent “crafty debtors” escaping the realm.
• In the United States: bankruptcy is specifically authorized in United States Constitution, Art. 1, Section 8 (4)
“Jesus Christ didn’t suffer the greedy well. “And He found in the temple those who sold oxen and sheep and doves, and the money changers doing business. When He had made a whip of cords, He drove them all out of the temple, with the sheep and the oxen, and poured out the changers’ money and overturned the tables.”
BIBLICAL REFERENCES: Let us not forget the Lord’s prayer: “…and forgive us our debts as we forgive our debtors” Jewish law provides for cancellation of the debts of brethren every 7 years (Deut. 15: 1-2, NIV) and, on the 50th year (jubilee) “shall proclaim liberty throughout the land, too all its inhabitants” (Lev. 25:10, NIV). The Jewish lawmakers knew that keeping people under heavy debt forever would only hurt their overall economy. As a result of these basic principals their economy stayed healthy and continued to grow.
“If your debtor be in straits, grant him a delay until he can discharge his debts; but if you waive the sum as alms it will be better for you, if you but knew it. Believers, have fear of God and waive what is still due to you from usury, if your faith be true; or war shall be declared against you by God and His apostle. If you repent, you may retain your principle, suffering no loss and causing loss to none.”
The Koran 2:276.
Some creditors, especially credit card companies, have become outrageously greedy, and sometimes very deceitful. Many times these creditors have actually been the reason that my clients are forced to file bankruptcy. For instance – a collection company for one of the largest credit card company told my client, an 82-year old widow, that he “had the legal right to bring a moving van to her house and take anything he wanted”.
Diane L. Drain
The Commandments brought by Moses regarding greed have been broken by these creditors. Biblical warnings against usury (an immoral charging of interest) are ignored. Today, credit card companies are allowed to engage in legalized loan sharking. Shockingly, Christian leaders are silent, passive, and apathetic when it comes to working men and women in contemporary society who are crushed by usurious interest rates. Christians in general seem complacent about their own victimization. It is difficult not to see how charging 18 percent or more is anything other than greed. There are numerable Biblical references regarding the evils of greed (Proverbs 30:15, 1:19; Luke 11:39; 1 Timothy 6:10, 3:3, 6:10). Scripture teaches that we are stewards of God’s wealth. Hence it would be a sin to misuse, squander, or misappropriate it. This is not to suggest that interest isn’t a legitimate charge. The excessive charging of interest, however, is usury –which is a form of theft (Proverbs 11:26; 1Timothy 6:17; Luke 19:46; Matthew 21:10-17). This sin created excessive consumerism that gave birth to a false god in violation of the First Commandment.*
Company bankruptcies are necessary to stop aggressive creditors from closing down viable, but overwhelmed businesses. Through a Chapter 11 the company pays back some of their debts, but does so at terms it can afford. Chapter 11 is used to refurbish small and large companies. It may be a method to help a company scrape off debt that is overwhelming and get rid of obligations that are over financed. Through a Chapter 11 employees are kept working, inventory purchased and taxes paid. Without Chapter 11 those employees would be out of work, the providers of the inventory would suffer financial hardship and taxes burden would fall on others.
Sometimes the debtors are abusing creditors. The debtors take on debts that they never intend to pay. The debtors falsify their financial statements. They purposely lie about assets and use every method to mislead old and new creditors. The bankruptcy laws are also designed to help protect the creditors. If a debtor sells assets for less than they are worth, puts debts on credit cards knowing that they cannot pay the debts or fraudulently takes money without the intent of paying – those creditors are not the aggressors; they are the good guys. The bankruptcy laws permit reaching back in time and recapturing the assets that were sold or money that was paid. These assets are brought back into the bankruptcy estate and distributed evenly among the creditors. Bankruptcy is not a time for injured creditors to be passive. They must actively participate in the process in order to be protected.
We are not the first to face this economic problem, nor will we be the last. Even some of the founding fathers didn’t think much of financial institutions. Thomas Jefferson called banks “more dangerous than standing armies.” Andrew Jackson, told a delegation of bankers that they were a “den of vipers and thieves.” Thousands of years before the birth of Christ excessive charging of interest had been denounced. In the ancient world writers, philosophers, and political figures all noted its harm to society and the individual. Aristotle called the birth of money from money “unnatural.” Julius Caesar capped the interest of loaning money at 12 percent and Justinian dropped it to 8 percent.* God gave us this wisdom in the Bible: “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.” (Romans, Chapter 13, Verse 8.)
Can you now see how the very economy of our country would be directly affected if we were not protected by these well founded principals of bankruptcy? Perhaps this helps you understand how important bankruptcy is to our daily personal, professional and social lives. Every one of us would be directly affected if the bankruptcy laws did not exist.
Therefore, the next time someone mentions the word “bankruptcy,” don’t be so quick to form a negative opinion and assume “failure” goes hand-in-hand with bankruptcy. It actually takes more time, energy and will power to put yourself under the close scrutiny of the bankruptcy process than it takes to close the business or go underground as a consumer. Think of it as an area of law that holds our lives together and keeps us functioning as a growing and healthy economy. Give bankruptcy law the credit it deserves and you will find it to be a fascinating field of law.
All of this and more it why I wake every morning excited that I can help both debtors and creditors understand bankruptcy.
To quote the Bishop “If credit card representatives told Jesus he had to pay 18 percent interest or more, he may have taken a whip of chords to show his disapproval. Because Jesus is not here in person to take action, it’s time Christian leaders use their political clout to drive out today’s moneychangers from the homes of families.” Catholic Reflections & Reports.
By Diane L. Drain, attorney and counselor at law. *I want to thank Bishop Paul Peter Jesep, Ukrainian Autocephalous Orthodox Church – Sobornopravna of Europe and the Americas for his help on the theological history of usury and credit. His Grace is based in New England. He may be reached at VladykaPaulPeter@aol.com.
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