With many people still struggling to find work, bankruptcy filings continue to grow. More than 500,000 people have filed so far this year, according to the National Bankruptcy Research Center. That’s up 17 percent from last year at this time.
While bankruptcy’s stigma has weakened in recent years, it is still an especially troubling topic for many Christians. What about the biblical admonition that “The wicked borrow and do not repay, but the righteous give generously” (Psalm 37:21)? Does that make a person who has filed for bankruptcy, or who is considering filing, a “wicked” person? No. While bankruptcy should be viewed as an absolute last resort, it is a viable option—even for a follower of Christ.
Three Important Questions
Consider the following questions to help determine whether bankruptcy may be appropriate for you.
Is there no other choice? The Bible teaches that we have a responsibility to provide for our families: “If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever” (1 Timothy 5:8). This includes cases where family is just you. If you have prayed for God’s help with your finances, pared your budget down to the absolute essentials, sought help from family and friends, and negotiated with your creditors in good faith, only to have them play hardball by garnishing your wages or by suing you, making it impossible for you to take care of your family’s needs, bankruptcy may be necessary.
Have you taken responsibility for your debts? You may have gone through some difficult circumstances that led to your debts—a divorce, the death of a spouse, medical problems, an extended time of unemployment. Still, chances are you can identify something you could have done to avoid the problems you now face, or at least to make them less severe. This isn’t about adding insult to injury. It’s about owning up to your part in the problem. What could you have done differently?
Have you taken steps to avoid debt problems in the future? If you weren’t using a budget to manage your spending prior to getting into debt, you absolutely need to be using one now. If any of your debts are credit card debts, you need to commit to not using your cards, at least for the foreseeable future. You also need an accountability partner that you meet with on a monthly basis to review your finances. I would never counsel someone to file for bankruptcy without these steps in place.
Bankruptcy Alone Won’t Solve Your Problems
If you haven’t made any significant changes in how you manage money, filing for bankruptcy may turn out to be nothing more than a short-term solution. All too often, that’s exactly what happens. According to the Consumer Bankruptcy Project, a Harvard University-based research group that has studied bankruptcy for twenty years, only half of all bankruptcy filers said their financial situation had improved a year after filing. As described in a Smart Money article, for 35 percent, their financial situation remained the same, and 15 percent said their situation had actually gotten worse.
Don’t Ruin a Relationship
There is one type of creditor whom you should make every effort to repay: friends or family members who have loaned you money. By law, you are required to list all of your liabilities when you file for bankruptcy, so individual creditors may receive at least partial repayment through the formal bankruptcy process. However, it’s unlikely that they would end up receiving the full amount that you owe, so you should repay whatever portion of the loan they do not recover, even if that means paying a small amount each month over a long period of time. Otherwise, your relationship with the person is likely to suffer.
Accepting God’s Forgiveness
Even if you realize that bankruptcy is your only option, you may still feel hesitant. Perhaps you feel embarrassed or guilty. If so, may I remind you that Scripture contains numerous examples where God forgave people of far worse behavior than taking on more debt than they could handle. For instance, Jesus forgave prostitutes (Luke 7:36-50), extortionists (Matthew 9:9-13), thieves (Luke 23:26-43), adulterers (John 8:1-11), and murderers (Acts 9).
Many biblical money management teachers say that Christians who file for bankruptcy should still pay back what is owed, even if it takes the rest of their lives. For a long time, that’s what I believed. However, during the process of writing Money Strategies for Tough Times, that teaching just didn’t sit right with me. As I thought about it and sought God’s guidance, what kept coming to mind was the fact that Jesus didn’t say to those he forgave, “Go now, leave your life of sin, and show up every Saturday to sweep the temple for the next twenty years.” He gave them a fresh start. Likewise bankruptcy offers a fresh start for those who need one most, have owned up to their role in their financial problems, and have taken steps to avoid trouble in the future.
Jennie – The first thing I’d recommend is that you sit down with a well-trained Christian financial counselor. If your church doesn’t have a Crown or Good Sense ministry, contact Crown via their site at http://www.crown.org. Ask for a counselor who is especially experienced. They can look at your complete financial picture and then give some wise counsel.
I’d like to make sure you’ve truly looked at all your options before moving toward bankruptcy.
My husband and I have never been disciplined at managing our money. In early 2008, we were presented an opportunity to open our own business. We prayed and prayed, and sought God’s direction because we were not in a financial position to take that kind of step. We had substantial credit card debt, thousands in medical bills, etc. Everything moved forward so quickly, we believed God opened doors for us that would have otherwise been impossible. Now, almost 3 years later, we are so incredibly upside down financially that we feel bankruptcy is our only choice. This has been an incredible journey of faith for my husband and myself. God has brought us through some impossible situations. Part of me is feeling, though, that by filing for bankruptcy, we are giving up on God. We took a leap of faith, that we felt was God directed. Even if we lose the business and our home, this has not been a wasted journey. We have learned and grown so much that I wouldn’t change a thing, but at this point, we are struggling with how to move forward. Do you have any advice?
Matt, this was a balanced and practical article.
If a person is able to pay your debts, then he or she ought to repay “just” debts. If the debts cannot be repaid in whole or part, then a number of options are available including a Chapter 7 or Chapter 13 bankruptcy. Bankruptcy laws were derived from the Bible (Deuteronomy 15:1-2). However, the Bible chronicles financial miracles (2 Kings 4:1-7). Accordingly, one must trustingly seek wisdom and guidance from God as to the direction He would have one to choose. (James 1:5-7; Proverbs 3:5-6). Further, seek advice from Godly people (Psalms 1:1; Proverbs 12:15, 11:14, 15:22).
That is one of the things that is great about this country, – it is a country of second chances. Much like our Creator. The bankruptcy laws were put in place for that reason.
I fully agree, Matt, if you follow the guidelines you set forth above, bankruptcy is a viable option for Christians.
If after going through bankruptcy you feel the calling to re-pay but are unable to (Matt touched on the fact that some institutions are unable to receive payments for debts that have been written off) find ways to bless others. Pay it forward!
David – In the situation you describe, I think the person should do as God leads. My understanding is that many times, when a business like a credit card company writes off a debt, they have no process or mechanism for receiving payment. But I would assume a person in that situation would still feel prompted to do something amazing. And when we do as God directs, especially something completely unexpected by the world’s standards, those are, as you say, some of the greatest moments of joy.
I agree that Christ forgives us fully through grace and no one should have to be “in bondage” to their debts until they have worked it off. On the other hand, if a follower of Christ inherited a bunch of money or got some incredible bonus after declaring bankruptcy, I think it would be appropriate to still go back and pay back the amount borrowed to anyone or any institution. The power of doing the right thing, even when it’s not expected, is one of the greatest moments of joy we experience. Thoughts?
Thank you so much for those resources. I just emailed this info to my friends. I’m hopeful they’ll find it helpful! Thanks for your time and wisdom!
Kathy – I’m glad to know how your situation has turned out. I know it wasn’t an easy decision, but you seemed to go about it in a very God-honoring way. Again, I’m really happy for you.
Linda – There’s no way of telling how long it might take for them to break even. Your friends may benefit from seeking guidance via http://www.makinghomeaffordable.gov and/or http://www.housinghelpnow.org. Counselors at both organizations should be able to provide unbiased guidance. Of course, they should also talk with the company servicing their mortgage.
If they end up going the short sale route, they need to know their credit will take a serious hit. But I like the fact that doing so involves an agreement with the lender to sell the house for less than what’s owed and that they will take responsibility for selling it. There’s a lot to know about all of this, so get some input from the folks I mentioned above who deal with this every day.
Thank you, Matt, for these encouraging words. I used a wonderful Christian lawyer last summer to help me get out of circumstances that had spiraled out of my control. After having excellent credit for more than 30 years, she helped me to see that in my situation it was actually biblical. It was a very tough decision, but she told me basically exactly what you have said. I was freed to have a fresh start ~ something God specializes in! My life is much simpler & better now, I learned some valuable faith lessons during the journey, and I am very content with what I have! To God be the glory!
What about a short sale. We have friends who have lost about $50,000 in equity in their home and they are considering a short sale because he has been offered a job in another city where they own a rental home. The job is an advance in his career, they’ve always wanted to move closer to family and they have family living in this city. But, they are very concerned about selling their home. They know it could take years to get what they’ve put into it–do they keep investing till they might break even? How long might that take? Is it better to go the short sale route? Lots of questions for them. We’re praying with them, but are unsure how to answer their questions.
I have to agree with you- bankruptcy should be used as an absolute resort, and when you do enter bankruptcy, you need to make sure you’re taking steps to ensure that it doesn’t happen again. If you’re able to pay your debts – do it. If not, take steps to make your situation better before and after filing.