Question
About ten years ago I extended a non-interest-bearing loan to a fellow frum Jew who had a successful business. According to the terms of the loan agreement, he was supposed to pay me back at the end of two years and he gave me post-dated checks to cover his debt. While his business continued being successful, he borrowed money which he used to invest. His investments went sour and he could not cover his debts and several of his large creditors took him to secular court where he sought and received bankruptcy protection. As I had no hope to get anything at the time if I would not notify the court of his debt, I informed them of his debt and like all of his creditors received thirty percent of what he owed me. I didn't sign any document to free him of the remainder of his debt but since that is how the case was settled, I can't collect from him under secular law. After he was freed of all of his debts he started anew and Boruch Hashem once again has money. Can I take him to beis din in order to collect the remainder of his debt or is he free from paying since under secular law he no longer owes me any money?
Answer
The first issue is whether by co-operating with the court to receive the thirty percent, you thereby agreed to accept the court's settlement.,
Since originally your borrower without a doubt owed you the money, the question in halachic terms is whether one who, under fear of losing his entire debt, accepts a partial payment is considered as having waived payment (mocheil) of the balance of the debt. Tosafos (BB 48A beg. wo. Omar) writes (and all poskim agree and it is ruled by SA (205, 2) without any dispute) that if one gives a present that was clearly given under duress, even if the duress is only a threat of a loss of money (and not physical harm), the present is not valid.
Therefore, even if you had consented in writing to waive the balance of the debt, your waiver has no validity. Therefore, based on this, in pure Torah law you can sue your borrower for the balance of what he owes you. However, the question remaining is whether because under secular law your borrower no longer owes you any money, he is free from paying you also under Torah law.
In general, there are two ways that secular law can bring about a change in recognized in Torah law. One way is because of dino demalchusa dino. As a result of this, laws of the land that are binding on Jews become Torah law even if they are not laws that were enacted by the Torah and Chazal. It is important to note that there are rules about which laws have the status of dino demalchusa dino.
The second way that secular law can affect Torah law is that even when secular law does not have the status of dino demalchusa dino it can create a custom. At times custom can change monetary laws of the Torah, as the Yerushalmi (BM 7, 1) deduces from a Mishna that custom overrides Torah law. This also has rules governing when it applies. Therefore, we need to examine whether, based on Torah rules, either of these, whether dino demalchusa (henceforth abbreviated ddd) or custom, applies to bankruptcy law. In this article we will only examine ddd.
SA never states rules when ddd applies we must deduce the rules from various rulings of the SA. One case that is discussed, concerns legal documents that were written in a secular court. The ruling of the SA (68, 1) for example, in the case of a sale of land, which even under Jewish law can be affected by means of a shtar-a legal sales document, is that the sales document must be drawn up in accordance with Jewish law. Even if a sales document is valid under secular law, it will not be effective in Torah law if it does not conform to the Torah's laws governing the validity of a sales document. The source of this ruling is the Rambam who maintains (explanation of Magid Mishne Malveh Veloveh (25, 1)) that ddd only applies to matters directly affecting the government such as taxes, but it does not apply to people's private dealings like the sale of a parcel of land.
However, we note that in some situations (e.g., CM 66, 14) the Rambam and SA do apply ddd even when the issue does not directly affect the government. (This difficulty is noted by the Ketsos (66, 20) and others.)
Thus, it is not clear what the SA holds and as a result, many Sefardic poskim, including the Tevuas Shemesh (CM 4, 33), rule that here Sefardim should follow the Ramo's ruling.
The Ramo (369, 11) follows the approach of the Rashbo and Maharik that ddd applies to all laws that are necessary for the proper functioning of society. Even if the dispute only concerns two Jews, if the government reasonably insists that everyone act in conformance with the law, ddd applies. He qualifies as well that ddd only applies to laws and not to judicial precedents established by the courts.
The Shach (73, 39) vehemently objects to a specific ruling of the Ramo that even when two Jews are the only litigants, the lender must wait a year before putting collateral that was given by his lender up for sale. The Shach says that since the Torah law allows the lender to put it up for sale after thirty days, we must rule in accordance with Torah law. He maintains that only when there is no Torah law contravening the secular law and the national interest is at stake, do we follow secular law based on ddd.
Later poskim are divided as to whether to follow the Ramo or the Shach. The Chazon Ish (CM Likutim 16, 1) follows the Ramo but limits his ruling to issues in which the government insists that everyone including Jews follow a certain practice. He notes that concerning most issues the government does not mind if beis din rules in accordance with Torah law if the parties accept upon themselves to adjudicate in conformance with Torah law. Other poskim including the Imrei Yosher (2, 152, 2), Doveiv Meshorim (1, 76), and Minchas Yitzchok (2, 86) maintain that the issue is undecided.
Concerning bankruptcy in particular, the poskim are not in agreement. The Maharshach (early seventeenth century, 2, 113) ruled in a case of a Jew who could not repay all his Jewish creditors. There was no formal bankruptcy law, but almost all of his creditors agreed to give him a grace period and to allow him to use his assets to try to earn money to repay his debts. The Maharshach ruled that we can force the few creditors who refused to extend the borrower a grace period to wait, since that was the common practice and, as we mentioned earlier, minhag has precedence over the strict din. This ruling is cited by R. Akiva Eiger (glosses 12, 13) indicating that he concurs, and other poskim, including the Maseis Moshe (CM 2, 62), are cited by the Birkei Yosef (CM 12, 14) as having followed the Maharshach's ruling. Thus, we see that where it is customary to grant an extension to a bankrupt borrower, custom prevails.
Another poseik who deals with this issue is Rav Moshe Feinstein (Iggros CM 2, 62). His question concerned a creditor who was able to get the directors to pay him more than his fair share of the assets of a bankrupt company. Rav Moshe ruled that he must return the funds that were in excess of his fair share since they were given in violation of the bankruptcy law. He says that one must follow the bankruptcy law since according to the Ramo ddd applies since it is the government's interest that there be a uniform law governing bankruptcies since otherwise people will not follow the law, which will undermine the government. (Apparently, Rav Moshe ruled like the Ramo against the Shach without citing the Shach.)
At first glance it appears that many other poskim disagreed with Rav Moshe's ruling. (They were written before Rav Moshe's ruling was published in 1985.)
One poseik who dealt with exactly your question was the Chelkas Yacov (in 1962). In his situation there was a bankruptcy settlement in U.S. court. Afterwards one of the creditors – who like you had extended an interest-free loan – then asked the borrower to return the balance which he hadn't received due to the settlement, arguing that he never meant to forgive the balance of his loan. He explained that the reason he didn't object to the settlement, when he was informed by the court of the proposed settlement, was because he did not want to jeopardize the entire settlement because that would have been detrimental to his friend, his borrower.
The Chelkas Yacov addressed the question of ddd and, in seeming contrast to Rav Moshe, claims that even the Ramo, the broadest opinion concerning the applicability of ddd, agrees that ddd does not apply in this situation since it will not undermine the government in any way if beis din rules that religious Jews need to repay their fellow Jew even if they were given bankruptcy protection.
The Minchas Yitzchok (3, 134) was asked the same question. He does not consider the issue of ddd and simply rules that if the lender never intended to forgive his borrower, the borrower must repay. Betseil Hachochmo (3, 124) also ruled that a bankruptcy settlement does not free the borrower from repaying his Torah debts.
It is likely that Rav Moshe Feinstein does not disagree with these other poskim because the issues were different. In Rav Moshe's case the directors acted in violation of the bankruptcy law by giving away assets that under the bankruptcy law were no longer in their control.
However, a religious borrower who repays his lender even if he is free from doing so under secular law, is not acting in violation of secular law and there is no reason for the government to object.
Custom, which is the second possible reason to free the borrower from repaying and which was invoked by the Maharshach, also appears not to apply. Since this is a lengthy topic, we will leave this for a future article BH. We will also discuss a third issue that can cause cancellation of the debt.
In conclusion: You can take your borrower to beis din to claim the portion of the debt that is still outstanding after the bankruptcy settlement.
