Should Christians file for bankruptcy protection when needed? Is filing for bankruptcy a sinful behavior? Does the Bible mention bankruptcy protection?
Christians have the freedom to file for bankruptcy protection when it is truly needed. The Old Testament provided debt forgiveness provisions for individuals and families. Protections initiated in the Bible were used as the framework for modern bankruptcy laws. Bankruptcy should be the last resort, however.
Disclosure: Bankruptcy is a complex issue. Please obtain professional help if bankruptcy is being considered.
What Is Bankruptcy?
Bankruptcy is a legal course of action a person or family takes when unable to pay outstanding debts or financial obligations. It’s almost like a financial do-over. In a way, bankruptcy provides a financial fresh start.
Bankruptcy is an agonizing experience. Sure, sometimes it is helpful and it is often needed. It’s always painful and embarrassing, though. I’ve heard it compared to going through a divorce.
Wounded pride and egos take time to heal. Go into bankruptcy proceedings with your eyes wide open.
There are two types of bankruptcy filings for individuals (Chapter 7 and Chapter 13), two types for businesses (Chapter 7 and Chapter 11), and a separate type for family farmers and fishermen (Chapter 12).
Chapter 7 and Chapter 13 for the individual will be covered in this article.
Bankruptcy In The Bible
Debt was managed much differently under the law of Moses than it is today.
Deuteronomy 15:1-2 (NIV) At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel any loan they have made to a fellow Israelite. They shall not require payment from anyone among their own people, because the Lord’s time for canceling debts has been proclaimed.
Going into debt was never considered a savvy stewardship move. Debt is discouraged in the Proverbs and it was considered part of the Curse of the Law in Deuteronomy. (Here’s a great article about freedom from the curse of the law).
U.S. bankruptcy laws closely resemble the concept of debt forgiveness of every seven years. In the United States, a person might need to wait eight years before filing again. Plus, lenders are not required to loan to a person with a track record of bankruptcy.
Still, there are certain situations where bankruptcy is the only way to get relief. Bankruptcy is neither forbidden nor sinful for Christians.
But What About Psalm 37:21?
Psalm 37:21 (NASB) The wicked borrows and does not pay back, but the righteous is gracious and gives.
This Psalm is instructive about character. It should not hinder a Christian from seeking bankruptcy protection when it is truly warranted.
Let’s consider a situation.
A family is driving and their automobile is hit by a truck. The truck driver flees the scene before the police arrive. Insurance coverage for the family does not cover medical expenses and the husband was recently laid off and his insurance coverage lapsed. Their baby required a helicopter airlift and several surgeries. Both parents were hospitalized and unable to work for several months due to their injuries.
Hospital bills were well over $500,000. Unemployment insurance only covered their rent and utilities.
This would be a legitimate bankruptcy request. Anyone attempting to misuse Psalm 37:21 in this case needs a lesson on Bible interpretations.
Here is a resource from the U.S. Courts system. If you’re considering filing for bankruptcy take some time and read it thoroughly.
Should Christians File Bankruptcy — Individuals
There are two types of bankruptcy filings for individuals: Chapter 7 and Chapter 13.
Chapter 7
Chapter 7 bankruptcy is the “fresh start” option. This is considered a discharge of debts and not a restructure. A fully approved discharge frees the individual from personal liability for most debts. It also prevents and forbids creditors from taking additional collection action.
Secured creditors may conduct repossessions to settle the debt. Those who might think that they will get a free car, boat, house, or RV out of bankruptcy are mistaken.
There are dozens of moving parts in a bankruptcy proceeding. Banks can skillfully navigate the proceeding and will protect their investments. Make sure that your lawyer is working in your best interest.
How Much Does It Cost To File Chapter 7
There is a financial burden involved in filing for bankruptcy. The courts charge around $335 (subject to change) for the filing. Some states require the filer to take credit counseling courses that cost up to $100 as well. Lawyer fees run between $1,000 and $3,000 for a Chapter 7 filing.
Filing without an attorney is highly discouraged, though. Bankruptcy laws are complex, and subject to change, and the banks have an army of lawyers and outside counsel.
Chapter 13
A Chapter 13 filing is a debt restructure or debt readjustment plan. Debts are paid but the debtor is often given an extended period of time to pay them. The loan is stretched out over time.
Chapter 13 Advantages
One of the biggest advantages is home foreclosure proceedings can be stopped. Eviction from a home is a heart-wrenching experience. Plus, an existing mortgage payment is often less expensive than finding a new place. Additionally, landlords are hesitant to rent to a person who is a challenging credit risk.
Another advantage is co-signer protection on certain consumer debts. Most co-signers do so reluctantly. They never expect to have to pay the debt. When the bank calls them for payment it’s typically a nasty surprise. It strains relationships. Chapter 13 just might make your Thanksgiving Celebration a bit more peaceful.
Disadvantages
Time is a large disadvantage when filing Chapter 13. Arrangements must be made with each creditor. Creditors must agree to the plan before it can be formalized. This part can be time-consuming — especially if there are several creditors.
Chapter 13 typically costs more than Chapter 7 as well. Sometimes the filing fees are lower but the attorney fees can be higher.
Alternatives To Bankruptcy
Bankruptcy is tough on pride, egos, and marriages. Before diving headlong into bankruptcy consider some legitimate alternatives. Get alone with God and ask for His divine direction, wisdom, understanding, and favor.
Perhaps a part-time job is in your future.
If the potential bankruptcy is a result of sloppy stewardship perhaps it’s time to double down and become a savvy steward.
Christians are free to file for bankruptcy. It should be resisted with every fiber of our being and be our last resort.
Timothy Kiser is the founder of The Profit Dare, has authored two stewardship books, is a church planter, and short-term missionary, and speaks at churches and conferences on financial concepts.