Declaring bankruptcy is a difficult decision for anyone, but Christians may have additional concerns about whether it aligns with biblical principles. The Bible does not explicitly prohibit bankruptcy, but it does provide guidance on managing money and debt wisely. Christians considering bankruptcy should carefully examine their motivations, seek wise counsel, and aim to honor God through the process.
Understanding Bankruptcy
Bankruptcy is a legal process governed by federal law that allows debtors to eliminate or repay only a portion of their debts under court supervision. The two most common types of bankruptcy for consumers are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy, also known as liquidation bankruptcy, discharges eligible debt completely after any non-exempt assets are sold to pay creditors. This provides a fresh start but can be damaging to credit scores for up to 10 years.
Chapter 13 bankruptcy sets up a 3-5 year repayment plan to pay back a portion of debts. Remaining balances are discharged after completion of the plan. Chapter 13 allows debtors to keep assets like homes and cars while repaying some debt under court protection.
Bankruptcy provides relief when debt becomes unmanageable, but it also has serious long-term consequences. Weighing these tradeoffs from a biblical perspective can help Christians make wise choices.
Biblical Principles Related to Bankruptcy
Several biblical principles offer guidance when considering bankruptcy.
Avoiding Unwise Debt
The Bible warns against debt that leads to bondage. Proverbs 22:7 states, “The rich rules over the poor, and the borrower is the slave of the lender.” While borrowing is not prohibited, scripture cautions against debt that becomes unmanageable.
Christians should avoid debt that is not absolutely necessary or that results from uncontrolled spending. “Be not one of those who give pledges, who put up security for debts” (Proverbs 22:26). Unwise borrowing often leads to bankruptcy.
Meeting Obligations
Scripture emphasizes meeting financial obligations whenever possible. The wicked borrow and do not repay, but the righteous give generously (Psalm 37:21). Make every effort to repay debts and fulfill obligations (Romans 13:8).
However, unforeseen circumstances like job loss, medical bills, or other emergencies can make repayment impossible. Bankruptcy may then provide an ethical option for discharging excessive debts.
Providing for Family
The Bible instructs us to provide for families and dependents. “If anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever” (1 Timothy 5:8).
Declaring bankruptcy is permissible when necessary to continue providing basic needs for family members. However, frivolous spending at the expense of meeting obligations is clearly unbiblical.
Seeking Counsel and Assistance
Christians should seek wise counsel when facing major decisions like bankruptcy. “Where there is no guidance, a people falls, but in an abundance of counselors there is safety” (Proverbs 11:14). Consult financial experts, legal advisors, and church leaders.
Scripture also encourages helping those in need. Christians struggling with excessive debts can seek assistance from family, churches, or aid organizations. Bankruptcy may then be avoided.
Motivations and Attitudes
Biblical principles emphasize proper motivations and attitudes more than strict rules. Christians should examine their hearts and priorities when facing bankruptcy.
A desire to avoid unwise debts, seek reasonable repayment terms, care for family, and manage money responsibly will lead to righteous motives. Selfishness, love of money, disregard for obligations, and desire for an easy way out reveal wrong attitudes.
Christians should also avoid judgment toward those declaring bankruptcy. Focus on showing grace and compassion rather than condemnation.
Practical Considerations for Christians and Bankruptcy
Along with biblical principles, Christians considering bankruptcy need to weigh several practical factors.
Alternatives to Bankruptcy
Before declaring bankruptcy, make every effort to repay debts through budgeting, reducing expenses, selling assets, negotiating with creditors, or seeking assistance. Bankruptcy should be a last resort after examining all other ethical options.
Types of Bankruptcy
Chapter 13 bankruptcy is often preferable for Christians as it demonstrates good faith efforts to repay debts under court protection. However, Chapter 7 may be the only viable option for disabling levels of debt.
Long-Term Consequences
Bankruptcy damages credit, limiting future borrowing options such as mortgages, car loans, and credit cards. Christians should count this cost and be committed to rebuilding credit wisely over time.
Impact on cosigners
Filing bankruptcy when others have cosigned loans may still leave them obligated for repayment of the debt. This should be carefully considered.
Tithes and Offerings
Christians filing bankruptcy need to maintain tithes and offerings to churches and ministries. Failure to do so violates biblical commands to honor God with our finances.
Timing Considerations
It may be advisable to declare bankruptcy shortly before an anticipated increase in income or assets. Otherwise, future wages and property may be subject to repayment claims from the bankruptcy court.
State Exemptions
Federal and state laws allow exemptions to protect specified assets like home equity, vehicles, retirement plans, and household goods during bankruptcy. Choose the set of exemptions that will best protect necessary property and assets.
Christians should consult bankruptcy attorneys to understand options thoroughly. Prayerfully applying scriptural wisdom leads to God-honoring decisions.
Steps for Christians Considering Bankruptcy
The following steps can guide Christians through the bankruptcy decision:
- Repent of any unwise financial decisions that created excessive debt.
- Prayerfully examine motivations and attitude of heart.
- Review income, expenses, assets and debts thoroughly.
- Consider biblical principles related to money and obligations.
- Explore every reasonable alternative for repaying debts.
- Seek wisdom and counsel from financial, legal and spiritual advisors.
- Determine if bankruptcy exemptions adequately protect necessary assets.
- Choose Chapter 7 or 13 bankruptcy wisely based on circumstances.
- Commit to honoring God throughout the bankruptcy process.
- Plan to rebuild credit carefully over time.
This thoughtful approach leads to God-honoring decisions when facing the challenges of excessive debt and bankruptcy.
Answering Objections and Concerns
Some Christians view bankruptcy negatively under any circumstances based on these concerns:
Bankruptcy is Dishonest
Bankruptcy can be abused dishonestly, but when legitimate needs arise, it ethically allows legal discharge of debts that simply cannot be repaid. Christians should still make every effort to meet obligations whenever possible.
Bankruptcy is Unbiblical
Nowhere does scripture specifically prohibit declaring bankruptcy. When faced with disabling debt, bankruptcy may be the most ethical choice left.
Bankruptcy Defrauds Creditors
Creditors assume the risk of default and build costs into interest rates. For many debts, creditors write off losses as standard business practice. Bankruptcy laws regulate these processes.
Bankruptcy Shows Lack of Faith in God’s Provision
Christians must balance faith in God’s ability to provide with responsible stewardship of finances. Ethically utilizing a lawful system designed to help those overwhelmed by debt need not reflect a lack of faith.
Under certain circumstances, bankruptcy can be a moral and ethical choice for Christians. With prayerful wisdom and sound counsel, it may provide the best resolution to otherwise impossible situations.
Concluding Thoughts
Navigating crippling debt presents Christians with difficult dilemmas. Prayerfully evaluating motivations, seeking wise counsel, counting costs, and responsibly utilizing ethical options under the law including bankruptcy can offer reasonable solutions.
Christians should also support fellow believers struggling with finances through generosity, wisdom, and encouragement. With compassion and biblical discernment, churches can help members make God-honoring decisions on bankruptcy and debt management.
In an imperfect world, even followers of Christ will face complex money problems. But by clinging to scriptural principles, the Holy Spirit’s guidance, and godly counsel, Christians can honor God even through the valley of bankruptcy.