Interesting to see the justice of the islamic system, especially when comparing islamic rules of trade & economy to the western ones we see at present. This comes from Islamic Revival
The bankrupt in language is the one without money and without that by which he would pay for his needs. It is meant by this that he reached a situation in which it is said about him, â€˜That he has no (fils) pennyâ€™ so he is muflis.
Muslim narrated via the way of Abu Hurayra â€œthat the Messenger of Allah (SAW) said:
â€˜Do you know who the muflis is?â€™ They said: â€˜The muflis among us is the one without a dirham or effects.â€™ He said: â€˜The muflis in my Ummah is the one who comes on the Day of Judgement with prayer, fasting and zakat. He comes and has insulted this one, falsely accused this one, eaten this oneâ€™s wealth, spilt this oneâ€™s blood and struck this one. This one is given from his good deeds and this one from his good deeds. If his good deeds finish before that which is upon him is not paid off, it is taken from their sins and they are thrown upon him. Then he is thrown in the Fire.â€
This statement of theirs is information about the reality of the muflis and the Prophet (SAW)â€™s statement, â€œThat is not the muflisâ€ is toleration (in using the word) and not negation to the reality but rather he intended that the bankrupt of the Hereafter is more severe and enormous such that the worldly bankrupt becomes like the rich man in relation to him. The bankrupt in the convention of the fuqaha is the one whose debts are greater than his wealth, and his expenditure greater than his income. They called him bankrupt even though he has money because his wealth is due to be spent in the payment of his debts so it is considered as if it does not exist.
Wherever the debts of the person are obliged immediately and his money is not enough to pay them off so his creditors ask the judge to interdict him, it is obliged upon him to respond to them. It is recommended to announce the (hajr) interdiction upon him so that people avoid transacting with him. If (hajr) interdiction was imposed upon him, four rules are established by that:-
The first of them is rights of the creditors relating to the his wealth itself. The second preventing him from the disposal of his wealth itself. The third is that whoever finds his wealth itself with somebody, he has more right to it than the remaining creditors if the conditions exist. Fourth, the judge has the right to sell his wealth and pay the creditors.
The evidence for the (hajr) interdiction over the bankrupt is what Kâ€™ab bin Malik narrated
“that the Messenger of Allah (SAW) interdicted the wealth of Muadh bin Jabal and sold it for the debt upon himâ€ (narrated by Al-Hakim).
From Abdurrahman bin Kâ€™ab: â€œMuadh bin Jabal was of the best youth of his people and he would not hold onto anything. He would not stop borrowing until his wealth was engrossed in debt and his creditors spoke to the Prophet (SAW). Were anyone left for the sake of anyone, they would have left Muadh for the sake of the Messenger of Allah (SAW). So the Messenger of Allah (SAW) sold to them his wealth until Muadh stood without anything.â€
When there is proved over the bankrupt rights for people or that which obliges a money fine via trustworthy testimony or a correct confession from him, it is sold from him all that he has and the creditors treated equitably. In principle it is not allowed that he be imprisoned just as it is absolutely not allowed to imprison a debtor in difficulty due to the statement of Allah (swt):
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â€œAnd if the debtor is in difficulty, then grant him time till it is easy for him to repay â€ [TMQ 2: 280].
Muslim and Abu Dawud narrated also from Abu Said Al-Khudri who said: â€œA man was afflicted at the time of the Messenger of Allah (SAW) in produce he had bought and his debts increased. So the Messenger of Allah (SAW) said: â€˜Give charity to himâ€™ and the people gave charity to him but that did not reach the payment of his debts so the Messenger of Allah (SAW) said: â€˜Take what you find, and there is nothing for you except that.â€™â€
It is narrated also that he divided the money of the bankrupt between the creditors but never imprisoned.
From Muhammad bin â€˜Ali bin Al-Husain who said: â€˜Ali bin Abi Talib said: â€˜Jailing the man in prison after it is known what is upon him of debts is injustice.â€™
As for what was narrated from Umar via the way of Said bin Al-Musayyab â€œthat Umar imprisoned the relatives on the fatherâ€™s side (â€˜asaba)â€”the men not the women–of the (manfus) child bed baby whom they financially supportâ€, this does not indicate imprisoning the debtor but rather only indicates imprisoning the one upon whom financial maintenance is obliged if he does not maintain the child. Maintenance is of the money which is obliged upon the one capable to provide maintenance. That indicates the imprisonment of the one who does not support particularly the young child who is the child-bed baby.
The rule regarding the bankrupt is that the judge sells to the creditors the debtorâ€™s wealth and divides it among them in portions as there is no way to do them justice other than this.
From Umar bin Abdurrahman bin Dalaf that a man from Juhayna would buy camels for a deferred period so he did this for high price. He became bankrupt and the matter was raised to Umar bin Al-Khattab who said: â€˜As for what follows, O people. Verily Al-Asfaâ€™a Asfaâ€™a Bani Juhaynah was satisfied of his deen and trustworthiness that it is said he overtook the pilgrims. He expanded in taking debt till he became debted. So whoever has something from him, let him come tomorrow morning, for we will divide his wealth in lots.â€™ From Umar bin Abdulazia that he judged about the bankrupt that his wealth be divided between the creditors and then he is left until Allah provides sustenance for him.
The bankruptâ€™s wealth which is found with him is divided amongst the creditors by shares of the value only between those present claimants whose time of their rights became due. It is not included among them the one present but not claiming or the absent who did not delegate or the absent and present whose time of his right was not due whether he claims or not. This is because the one whose time of his right was not due has no right yet, while the one not claiming is not necessary to be given until he claims.
This is where the bankrupt is alive. As for the deceased bankrupt, it is judged for everyone, present or absent, claiming or not, and each one with a debt whether immediate or to a named period. This is because all periods become due at the death of the one who has right or the one against whom there is a right. If there combines on the bankrupt the rights of Allah and the rights of the people (â€˜ibad), the rights of Allah taâ€™ala precede the rights of the slaves. So it is commenced with what he missed of zakat or expiation (kaffara); if it does not cover everything, this is divided upon all these rights by lots without preferring anything over another. Similarly the debts of people; if his wealth is not enough to pay all of them then each one takes according to his money of what exists.
The evidence that the rights of Allah precede the rights of the people is what was proved of the Messenger of Allah (SAW) that he said:
â€œâ€¦the debt of Allah has more right that it be paidâ€ and his statement: â€œâ€¦repay Allah as He has more right to be repaidâ€ (Al-Bukhari narrated the two via the way of ibn Abbas).
When the wealth of the bankrupt is sold, his maintenance and the maintenance of those whose maintenance is obliged upon him is examined, so his house which he has need of residing therein is not sold. Whereas if he has two houses, one of them could be used without so the other, the one which there is no need for is sold. If the bankrupt earns what maintains him and those whom he is obliged to maintain or he is able to earn that actually by employing himself, in this situation all his wealth is sold except his house which he needs to reside therein.
If he is unable to do anything of that, it is left for him from hs wealth that which is enough for him to maintain himself and those whom it is obliged upon him to maintain according to what is (maâ€™rouf) reasonable of his wealth, until it is finished of its division between his creditors.