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Bankruptcy in America
Crown Financial Ministries

Increase in number of bankruptcies

The term bankruptcy comes from two Latin words meaning “bench” and “break”; thus, its literal meaning is “broken bench.” Under Roman law, after gathering together and dividing the assets of a delinquent debtor, the creditors would break the debtors’ workbenches as a punishment and as a warning to other indebted tradesmen. In addition, these people were generally deprived of their civil rights.¹

In our society today, revisions to the bankruptcy laws and changes in consumer attitudes toward bankruptcy have fostered a climate in which people regard bankruptcy as a more plausible remedy for financial problems than they once did. Recent statistics seem to support this assumption.

Total bankruptcies surpassed 1.4 million in 1997 and rose slightly in 1998. This means that one in every 70 U.S. households filed for personal bankruptcy during that two-year period. That is almost a 50 percent increase in personal bankruptcies over the height of the recession in the early 1990s.²

Samuel J. Gerano, executive director of the American Bankruptcy Institute, said the dramatic increase in consumer filings could be primarily attributed to three variables: (1) sustained levels of household debt; (2) household budgets so overextended that it seems impossible to get out from under debt; and (3) the decrease in bankruptcy’s negative stigma and the abundance of credit.³

This record number of bankruptcies has taken place in an economy that is experiencing the lowest unemployment, the lowest inflation, and the lowest interest rates in years. Credit quality will likely deteriorate substantially with an increase in unemployment, inflation, and interest rates. Therefore, the real test for lenders will be when the economy experiences a recession.⁴

Biblical principles regarding bankruptcy

Psalm 37:21 says, “The wicked borrows and does not pay back, but the righteous is gracious and gives.” A debtor needs to make a commitment to pay back whatever he or she has borrowed, regardless of circumstances or how long it takes. Solomon said, “It is better that you should not vow than that you should vow and not pay” (Ecclesiastes 5:5). God is a faithful God, but His Word is very clear: A debtor is obligated to repay what he or she has borrowed.

Rather than being the first option, bankruptcy should be considered as a last alternative. Debtors first need to try to work with creditors and be willing to make whatever sacrifices necessary to fulfill their promise to repay. If the creditors refuse to agree to pay-back arrangements and instead force bankruptcy, that is the creditors’ decision and not the debtors’.

If an individual borrows money with an agreement to repay, bankruptcy does not negate this agreement scripturally. This doesn’t mean that a debtor in a hopeless situation cannot file bankruptcy; however, every other possible option should be tried before filing for bankruptcy. These options might include selling a home, a car, or any major assets; liquidating any retirement funds; seeking loans or gifts from friends, extended family, and/or church family; taking on additional jobs; postponing further schooling in order to work full-time; and working with a credit counseling service.

If after all other options have been exhausted there is still a need to file bankruptcy, there are two things to which a debtor must commit before filing. First, a debtor must be willing to accept the absolute requirement to live on a conservative budget and pay the debts back. In some cases, this may take an entire lifetime. Second, the debtor’s motive must be honorable, according to Scripture. If the bankruptcy action is taken to protect the legitimate rights of the creditors, the action would be biblically acceptable. However, if the motive is to protect the assets of the debtor, without due consideration of the creditors, the action is unscriptural. “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come back, and tomorrow I will give it,’ when you have it with you” (Proverbs 3:27-28).⁵

Conclusion

God’s Word makes is clear that a vow (promise) of any kind is not to be taken lightly. Once someone has given his or her word, it becomes a binding contract. So, before agreeing to any terms, it is assumed that an individual has carefully considered the consequences. For the current generation, this concept seems to be rarely taught and seldom applied. A vow to pay a creditor is usually deemed to be something that can be made under one set of circumstances and broken under another, or it is ignored when the purchased product loses its usefulness. However, God’s Word says that debtors are to be held accountable. Although our nation’s legal system may discharge (forgive) debts through a bankruptcy process, God’s people should still repay their debts in full, even after a bankruptcy. This can be a powerful witness to a world that is cynical about Christianity making any practical difference in a person’s life. As believers, we are held to a higher standard than merely what is legal.

¹ Larry Burkett, Answers to Your Questions About Bankruptcy, Christian Financial Concepts, 1995, p.1.

² www.abiworld.org/release/98secondquarterfilings.html

³ www.abiworld.org/release/98secondquarterfilings.html

⁴ www.dismal.com/thoughts/credit.htm

⁵ Larry Burkett, Answers to Your Questions About Bankruptcy, Christian Financial Concepts, 1995, p.6.