The Genesis of Bankruptcy Law

Consumers file bankruptcy cases in order to obtain a bankruptcy discharge.  A bankruptcy discharge releases the consumer from personal liability for certain specified types of debts. In other words, the consumer is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the consumer from taking any form of collection action on discharged debts, including legal action and communications with the consumer, such as telephone calls, letters, and personal contacts.

Bankruptcy and the Bible - Is Bankruptcy Moral?

Many people think of bankruptcy as an “immoral” act, and that erasing their debts somehow turns them into a “bad” person. The truth is that bankruptcy is deeply rooted in the Bible and that Biblical doctrine actually inspired Congress to pass the first bankruptcy laws in the United States on April 4, 1800.

The “bankruptcy discharge” actually originated from the book of Deuteronomy, which ordered lenders to release borrowers from their debts every seven years.  The book of Deuteronomy states:

“At the end of every seven years thou shalt make a release. And this is the manner of the release; every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed.”  (Deut. 15:1-2)

Forgiveness of Debts - Old Testament

The Old Testament is full of examples of the compassionate treatment of the poor.   For instance, Deuteronomy 15:7-10 is particularly forceful.  It reads:

“If there is a poor man among your brothers...do not be hardhearted or tightfisted toward your poor brother.  Rather be open-handed and freely lend him whatever he needs.  Be careful not to harbor this wicked thought: "The seventh year, the year for canceling debts, is near," so that you show ill toward your needy brother and give him nothing.  He may then appeal to the LORD against you, and you will be found guilty of sin.  Give generously to him and do so without a grudging heart; then because of this the LORD your God will bless you in all your work and in everything you put your hands to."