The Book of Bankruptcy
The discussion in this book concerns the definition of bankruptcy and the legal rulings that pertain to the bankrupt. We say:
In the Sacred Law the term “bankruptcy” (iflas) is used in two senses:
- That a debtor’s liabilities consume his entire estate, so that nothing remains with which to discharge the debts.
- That he possesses no known property at all.
With respect to each of these two kinds of bankruptcy the jurists have disagreed about the relevant rulings.
As for the first situation—when the judge is satisfied that the debtor’s condition is as just described—the scholars differ: Does the judge have the authority to bar the debtor from disposing of his assets, sell those assets on his behalf, and distribute the proceeds among the creditors in proportion to their claims? Or does he lack that authority, the debtor instead being detained until he turns over all of his property to the creditors on whatever terms they mutually agree, whether to all of them or to whichever of them they choose?
The very same dispute arises with respect to someone whose assets do cover his debts yet who refuses to treat his creditors justly: should the judge sell his property and divide the proceeds among them, or imprison him until he himself pays what he owes?
The majority maintain that the judge sells the debtor’s property, thereby rendering the creditors—or the lone creditor, if there is only one—whole; or, if the estate is insufficient, declares him bankrupt, forbids him to transact with his property, and distributes it accordingly. This is the opinion of Mālik and al-Shāfiʿī. Abū Ḥanīfah and a group of Iraqi scholars hold the opposite view.
The evidence cited by Mālik and al-Shāfiʿī includes:
• The ḥadīth of Muʿādh ibn Jabal: “His debt became heavy in the lifetime of the Messenger of Allah, peace and blessings be upon him, and the Prophet did no more for his creditors than to have them take what Muʿādh owned.”
• The ḥadīth of Abū Saʿīd al-Khudrī: “A man during the time of the Messenger of Allah purchased a crop on credit; disaster struck, his liability grew, and the Messenger of Allah—peace and blessings be upon him—said, ‘Give him charity.’ The people gave him charity, but it was not enough to settle the debt. The Prophet then said, ‘Take whatever you find; you are entitled to nothing beyond that.’”
• The ruling of ʿUmar regarding the imprisonment of a bankrupt man, wherein he announced: “To proceed: al-Usayfiʿ—Usayfiʿ of Juhaynah—was content that people say, ‘He beat the caravan to the ḥajj,’ yet he went about borrowing heedlessly until his debts overtook him. Whoever has a claim against him, let him come to us.”
They also argue by analogy: if a sick person is legally restrained from disposing of his wealth out of consideration for his heirs, it is even more fitting that a debtor be restrained out of consideration for his creditors. This view is the stronger one, for it is the more just—and Allah knows best.