Bankrupcy and Islam
Fatwa No: 86037

  • Fatwa Date:9-7-2003 - Jumaadaa Al-Oula 10, 1424
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Question

If a person becomes bankrupt, must he pay his debts? What is the ruling regarding this in Islam?

Answer

Praise be to Allah, the Lord of the Worlds; and may His blessings and peace be upon our Prophet Muhammad and upon all his Family and Companions. The bankrupt person (in Shariah) is one whose money cannot pay all his debts. Now, if his creditors request from the ruler to limit this person's legal competence to spend from his property until they are paid, the judge or the ruler grants their request provided their debts are legitimate. This limitation can be done only following a request from the creditors. If some of these creditors whose bills exceed what the bankrupt person's tangible assets, ask for this limitation of competence, then the ruler or judge sells the property of the bankrupt person and distributes its price among the creditors according to their respective shares. In this case, the ruler allows the bankrupt person to have enough to spend on himself and on those he is responsible for. The Hambali believe that the ruler should also let the bankrupt have his house if it is of the same kind appropriate for his critical situation, otherwise the house is sold and the ruler providing the necessary housing. If he has a slave, he is retained as well as any tools needed in his work, otherwise a portion of his money should be left for him to trade with. The Malikis believe that his bed, his Qur'an book, his other books, his house, his slave, his horse saddle and all similar things are sold and only his manual instrument or his tool for making things are left for him. The Shafi'es believe his house, his slave, his tools are all sold because the rights of people should be fulfilled on the spot, not after a delay. The Fuqaha ask the following question: "After the ruler or Qadi sells the property of the bankrupt person, does the latter have to hire himself in order to pay the remaining of his debt?" The Malikis and Shafi'es believe that he is not obliged to do so and this is the most correct opinion and its evidence is the following verse. Allah Says (interpretation of meaning): {…then grant him time till it is easy for him to repay,…}[2: 280]. The Prophet (Sallallahu Alaihi wa Sallam) said: "Take what you find and that is all what you are entitled to" [Reported by Imam Muslim ]. This means that the creditors only take what they find and leave the bankrupt until he is able to pay the remaining debt. They have no right of jailing him or reprimanding him. The Hambali believe that the bankrupt is forced to hire himself. Allah knows best.

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