[Question:]{.underline} Can a Catholic in conscience declare bankruptcy, and if so can he consider his debts as forgiven?
[Answer:]{.underline} Civil laws allowing the declaration of bankruptcy are just laws, enacted for the common good, for they enable a debtor’s creditors to be satisfied in as far as and just a manner as possible, and prevent his remaining assets from being squandered or wasted. They consequently oblige in conscience, insofar as they do not conflict with the natural law. Fr. Jone in his Moral Theology (p. 259) describes what is allowed by natural law: “The natural law allows an insolvent person to retain what is required to modestly support himself and his family according to their social status and to establish a small business…To retain more than this is an injustice and makes one subject to restitution…”
Consequently, it is morally licit to declare bankruptcy, provided that it is truly impossible to pay one’s creditors, and provided that one honestly declares all of one’s assets. However, it does not necessarily follow from this that the debtor is freed from all obligation in conscience to make restitution to his creditors.
In fact, ordinarily and of itself, the obligation of restitution is not abolished but only temporarily suspended, until such time as it becomes possible. The reason why this is ordinarily the case is that the creditors only very reluctantly accept a partial reimbursement of the debt, and cannot be considered as voluntarily condoning it, if the former debtor enters into sufficient wealth to pay it off.
However, exceptions to this ordinary rule of justice take place when civil laws explicitly and entirely abolish every obligation of paying a debt after a true legal bankruptcy declaration. This is an accepted exception, for such laws are just laws, very useful for commerce and for the common good. Such persons, having honestly, and without any fault of their own, fallen into bankruptcy, are then free to begin again their family and business activities. Fr. Jone has this to say about the U.S. “where the juridical opinion favors complete freedom in case of a bona fide bankrupt. According to this more lenient viewpoint, debts are contracted under the implied condition that they will cease in case of bona fide bankruptcy. Although the legal immunity guaranteed in phrases as ‘forever discharged from all debts and claims’ does not apply to the internal forum, nonetheless the law for all our States and territories ‘a discharge in bankruptcy shall release a bankrupt from all his provable debts…’ is adduced as proof of the solidly probably opinion that a declaration of bankruptcy liquidates a bona fide bankrupt’s debts also in conscience” (Ib. pp. 259 — 260).
It seems to me that this opinion can certainly be followed with respect to debts to mortgage companies, credit card companies and the like, for they calculate on a certain proportion of bad debts. However, it would seem that in the case of a personal loan from a friend, acquaintance of relative the implied condition of the cessation of the debt in case of bankruptcy would not exist, and that such debts call for restitution in conscience, even if they do not according to civil law.
Furthermore, any person who deliberately brings on a bankruptcy by negligence in administering his finances, or by failure to regularly fail his bills, or by living beyond his means, or by racking up high credit card debts, certainly has the duty in conscience of restitution, even after bankruptcy has been declared. For it is taught by all the theologians that when the bankruptcy is brought on by grave fault or fraud on the part of the bankrupt, then the duty of restitution always remains, as soon as it becomes possible to do so (Prummer, II, p. 210).
It is certain that in our materialistic world this whole question of justice and honor in paying one’s debts is taken very lightly, and that many people feel that they are in no way culpable or at fault in bringing about their bankruptcy, or living in such a way as to gravely risk bankruptcy, under the excuse that they can always declare bankruptcy. This is a sin against justice, as well as an abuse of the bankruptcy laws. This cardinal virtue of justice is crucial to any upright Catholic life. Grounds of charity cannot be used to excuse from it. Traditional Catholics must make an effort to escape from the slavery of materialism that will lead them to sins against justice, by fighting against the mentality of spending all the time, and of abusing the facility of credit cards.
Answered by Father Peter Scott, SSPX.