This article provides a detailed examination of the structure, sources, and ultimate content of the Islamic law of distressed debt. With specific illustrations from the Qur'an, sunna, and fiqh (Islamic jurisprudence), it orients non-specialists on the path to understanding where Islamic law comes from, how it is structured, and what its most salient provisions say about the proper treatment of insolvent debtors. Tracing the various divisions within Islam on the proper identification of shari'a, this article reveals a rich tapestry of contrasting views among and within the shi'a and sunni doctrinal schools of thought. Both the original sources and the secondary juristic analyses of these sources struggle with a delicate balance between forcing debtors to pay their debts while enjoining creditors to be patient and forgiving with respect to distressed debtors. It is hoped that this detailed and sensitive discussion will enhance the increasingly frequent insolvency law reform conversations between Westerners and those in Muslim nations by encouraging the former to respectfully engage with classical Islamic sources and methods, as opposed to advancing arguments based merely on Western views of economic expediency, efficiency, and experience.
Most bankruptcy attorneys are familiar with the bankruptcy roots in the Jewish Scriptures, such as the Year Jubilee, described in Leviticus 25:10, or in the Christian New Testament, including the Lord’s Prayer or the Parable of the Unjust Steward. This article provides an in-depth understanding of the classical interpretations of debt forgiveness in Islam, based primarily on the quotation "If the debtor is in difficulty, grant him time ‘til it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew." Qur’an 2:280. Having an understanding of other the debt forgiveness traditions from other faiths is clearly useful for any bankruptcy attorney, both in deepening his or her conception about bankruptcy and, in our increasingly multi cultural world, for relating to clients from other backgrounds.
This article was orginally published in the American Bankruptcy Law Journal, but is now available at: