Chapter Two
Debt
It is now clear that the reasons for debt fall into two categories:
First: That which results from a transaction that involves a thing becoming owed, such as the seller owing the sold item to the buyer in the case of a handing-over sale (bay‘ as-Salam), the buyer owing the seller the price (payment) in the case of a postponed-payment sale (bay‘ an-nasi’ah), the husband owing the wife the delayed portion of the dowry, the tenant owing rent to the owner under a rental agreement, and the like.
Second: What results from the acts of the person in which compensation is due from him, such as compensation for an offence or compensation for damage caused by him, or what results from some of his relationships with others, such as the permanent wife’s alimony, and other financial dues that result from a reason other than the transaction itself.
On the basis of this, what we are going to explain regarding the rulings of debt cover every debt, including that which is the result of a ‘loan’ transaction as detailed in the previous chapter in what relates to it as a loan, leaving the rulings that relate to it as a debt, which is like other reasons of debt.
(A) Postponement and its rulings
1130. A debt – regardless of its reason – becomes due immediately if postponing it was not stated within a binding or potential contract, so the creditor has the right to claim it whenever he wants, and the debtor – when capable – has to pay it back if requested. If it is postponed, the creditor has no right to claim it back before the arrival of the date, generally; also, the debtor has to do his best to pay back the debt to the creditor when the date arrives – as will be explained.
1131. The paying back date must be specified so as to remove any doubts about it; here are two situations:
1- The debt is a result of a loan contract; in this case it is sufficient to know its date in general terms, such as the harvest season, pilgrims' arrival and the like as the minimum; but if it is not known (even) with this degree of accuracy, the postponement condition is invalidated and the loan becomes immediately due.
2- The debt is for reasons other than a loan; in this case the preciseness of the date differs according to the contract involving the debt; so it must be extremely clear in things like a handing-over or postponed-payment sales, while it is not essential to be likewise in a marriage dowry – thus, the paying back date is to be specified according to what is suitable to the debt.
1132. Just as it is not allowed to postpone an immediately-due loan in exchange for an excess on the borrowed asset, this is the case in all debts. Also, it is not allowed to extend the duration (push the date back) by increasing the debt for the creditor, since this is forbidden interest. That said, the creditor – if he wishes to accelerate paying back (by bringing it forward) – is allowed to cancel some of the debt in exchange, as it is allowed for the debtor to accept it and be relieved of his obligation (towards that part).
1133. If the debtor dies with a postponed debt outstanding, the debt becomes immediately due as a result of his death and the creditor is allowed to ask the heirs to pay it back, and the heirs are obliged to pay it back from the estate. If the creditor dies, the date stays as it is and the heirs have no right to claim it from the debtor before the arrival of the date.
(B) Paying back the debt
1134. It is obligatory on the debtor – when capable – to pay back the debt due immediately, unless the creditor accepts a delay in doing so; the debtor is not allowed to put off (delay unnecessarily) and stop from paying it back – it is in one of the grand sins. The same applies to the postponed debt when the date for paying it back arrives.
1135. If the debtor made postponement a condition, the creditor has no right to ask him to pay it back before the postponement date, whether the postponement was a condition set by the creditor or not. However, if the postponement was a condition set by the creditor only, and the debtor was ready to pay it back if the creditor accepted it before the date, in this case the creditor has the right to claim the debt back and the debtor is obliged to pay it back.
1136. If the debtor wishes to pay back the postponed debt before the arrival of the date, there are two possibilities:
1- If the postponement condition was imposed by the debtor, in this case the creditor must receive his debt from him.
2- If the postponement condition was imposed by the creditor, or by both of them, in this case the creditor has the right to refuse receiving the debt from the debtor.
1137. How the debtor becomes able to pay back the debt can be imagined in two situations:
1- If he has the means to pay back the debt out of what he does not need for his living expenses – money, debts he has with others which he can claim back, transferable or non-transferrable assets - in this case he has to pay it back even if at the cost of selling some of them or renting them at less than their market value, unless the reduction is considerable (grossly unfair). But if he has only what he needs for his life and maintenance, i.e. what are regarded as necessities commonly seen as suitable for people of his status, so that giving them up or leaving them would be intensely difficult or belittling to him(things such as his home, clothes or books, even his servant, all of which are called ‘the debt exclusions’), in this case he is not obliged to sell themin order to pay back the debt, although it would be valid to sell them for that reason - unless selling them contradicts another obligation, such as housing his wife and meeting her expenses, in which case it becomes forbidden.
2- If he does not have the means to pay back the debt, but he can borrow from others, or work to earn in a way that is suitable for him, in this case it becomes obligatory on him to the extent needed to pay back the debt.
1138. The debt exclusions mentioned above are to be observed only during the life of the debtor; however, after his death, they are not excluded, including his home, so his heirs must pay back his debt from his estate without excluding anything from it and giving the priority to the obligatory pilgrimage and will, even if some of his heirs are young.
1139. It is valid for the creditor to make it conditional in the contract on the debtor to sell the exclusions if paying back the debt depends on them and the debtor has to abide by it in this case.
1140. A debt is either a similar-type or value-type:
1- If it is a similar-type, in this case it must be paid back with what is similar in type and amount, even if its value at the time of paying is different to its value when borrowed, unless the debt involves modern banknotes and its value has crashed; in this case its value before crashing must be considered.
2- If it is a value-type, here are two cases:
a- If what is owed is an asset that is of a specific type, such as if it is the price of a postponed sale of an animal or oil, in this case it must be paid back with whatever equals the value-type asset involved.
b- If what is owed is the value itself, such as the compensation for damaged value-type assets, in this case settlement of the debt must be done by paying money that is equal to the value of the asset at the time of paying back not when it was damaged. Regarding the loan, we have explained its ruling (no. 1128).
1141. It is allowed to volunteer to pay back someone else’s debt, alive or dead, and the debtor will be relieved from the obligation, whether the debtor accepts or not; it is even valid in the case where the debtor tries to stop one from doing so. The creditor has no right to refuse accepting the volunteer’s settlement of the debt.
1142. If the asset that is at a non-Muslim’s disposal is a payment for an alcoholic beverage, dead animal or pig, the Muslim is free to take these payments as settlement of a debt he has to the non-Muslim or the payment of an exchange agreement between them.
1143. If the debtor does not pay back the debt due from him when he is capable, here are two situations:
1- If there is no dispute among them on the amount of the debt, how to pay it back or the like, in this case the creditor who is acting on his behalf is allowed to force him to pay, even if by resorting to the unjust ruler, provided that obtaining his rights cannot be achieved otherwise.
2- If there is dispute over this, in this case they must turn to the Islamic authority and not any one else, unless obtaining the debt cannot be achieved by other means.
1144. If the debtor presents the debt before the arrival of date for paying it back, the creditor cannot refuse, and if he refuses, the debtor is allowed to force him; if forcing him is not possible, it is allowed to hand over the debt to the Islamic authority instead, when possible, not to any other – so it is not sufficient to, for example, deposit it in the bank in the creditor's name, or to leave it as a trust with someone, and the debtor is not relieved of his obligation if the payment becomes damaged in this case. If the Islamic authority is not present, or if he refuses – if it is allowed to refuse – to receive the debt, the debt stays owed by the debtor and he should wait for a period that is normal in such cases until the creditor or his proxy takes it; otherwise he is allowed to relieve himself of the asset provided that he is certain it would not be lost and with the permission of the Islamic authority.
1145. If the debtor is unable to pay back the debt, it is forbidden for the creditor to pester him with claiming and pressing; rather he has to wait until he can pay. However, if he was not truthful in claiming his inability to pay, it will be allowed to dispute it until he proves his inability, even if through turning to the Islamic authority. Also, creditors have the right to resort to the Islamic authority when the debtor becomes bankrupt, which is what we are going to discuss separately.
1146. The creditor may cancel the debt that is owed by the debtor and relieve him of it, something which is called ‘ibrā’’, which is a recommended thing even when the living debtor is not poor and is capable of paying back, not to mention if he is dead.
1147. The ibrā’ is a declaration that does not need the acceptance or satisfaction of the debtor; it is sufficient to declare it using any wording that means it, such as ‘sāmahtok’ (lit. I forgive you), ‘ahleltok min ad-Dayn al-Lethī ‘alayk’ (I have relieved you from the debt that is owed by you), ‘wahabtok mā fī thimmetik’ (I have given you – as a gift – what is owed by you) or the like.
1148. If ibrā’ is declared by the creditor, it becomes binding, so the debtor is relieved of his obligation even if he (the creditor) retracts from it afterwards, in which case if the creditor claims it from him, the debtor is not obliged to respond unless if he chooses to do so.
1149. It is recommended (mostahabb) to be gentle in claiming payment of the debt even when the debtor is financially comfortable, and it is recommended to abstain from (makrūh) pressing him to pay. It is also recommended to pay off the parents’ debts, especially after their death. It is also recommended to relieve the living believer, not to mention the dead, from debts he owes.
(C) Unilaterally-performed compensation
1150. A moqāssah is: the initiative taken by someone who has something – assets or debts – owed to him by someone to take something else from the other person’s assets which is at his disposal, without his knowledge, when he does not pay back the asset or debt when it is due. Moqāssah is allowed and a right that is confirmed independently for the owner of the asset in question, without the need to turn to the Islamic authority nor to seek his judgement, if the creditor cannot obtain what is rightfully his through the Islamically legal or ordinary ways without difficulties; it has priority over seeking the help of the unjust to obtain the settlement of the debt. A moqāssah may be assumed in two situations:
1- If the debtor misappropriated his asset (ghasb), through stealing or the like, or refused to pay back a debt that is obligatory on him and commits injustice and transgression upon the creditor's the right to settlement, for example in the payment for a postponed-payment sale, wages for work, returning a borrowed asset and any similar situation in which the person performing the moqāssah has a clear right over the other person, in both assets and debts.
2- If he makes a claim from the debtor but the debtor refuses to pay out of ignorance that what the claimant is claiming is due, in this case, and in spite of it - since the person performing moqāssah believes that he has a right in the particular asset that exists in the other person’s possession or is owed payment by him - he has the right of moqāssah and may take back his asset if it is an asset or take his debt related to this asset if it is a debt. However, if the debtor does not deny his right, but asks him to wait so that he can make sure of the claim, or if he wishes to resort to the Islamic authority, or to take a similar action that shows the wish of the person to pay back the debt to the claimant once it is proven, in this case the claimant has no right to rush the matter and to perform moqāssah against an opponent who does not deny the debt.
1151. Although moqāssah is allowed in the two previous situations, it is recommended to abstain from it, especially if the other person shows a feeling of injustice and inability, such as turning the matter to Allah, the Most High, or if he swears to the claimant that he had no right over him – if this is out of his own personal initiative, but not if such swearing is done as an oath in front of a judge, in which case moqāssah is not allowed.
1152. It is conditional in the asset used to perform moqāssah – when possible – to be similar to the asset which is claimed by the person performing moqāssah; the asset taken from him should be of a similar-type, or of the same value if it was a value-type; but if he cannot do that, he is allowed to take any asset that comes into his disposal that is equal to the debt owed to him.
1153. It is not allowed to hasten to carry out moqāssah before exhausting the Islamically legal and ordinary means when there is no difficulty for him to do this; he must start with all means of persuasion to have his debt paid back using any way, or to force him after refusal using common ways; then, if after all this payment does not materialise, he is allowed to perform moqāssah.
1154. If the claimant and the opponent turn to the Islamic authority and he issues his ruling for one of them, the losing person – (even) if he believes that he has the right – has no right to perform moqāssah on the winning person, as an obligatory precaution.
1155. Things that have to be observed in the asset using to perform moqāssah are:
1- It must not be one of the debt exclusions (see no. 1137.)
2- It must not form part of a bankruptcy settlement, otherwise it would become an asset to be shared by all creditors in the ratio of each of them; the same applies if the opponent dies and his estate is not sufficient to pay all his debts, whether the person performing moqāssah wants to take the whole of his debt or only his share as one of the creditors.
3- The asset taken must not be the subject of a claim by others, such as an asset mortgaged for others, or when a vow (nathr) is involved and the like.
1156. Moqāssah is allowed if the claimed (misappropriated) asset is a benefit, such as if the debtor misappropriated his house’s benefit and was denying it or putting it off unnecessarily; in fact, it is allowed if the claimed (misappropriated) asset is a financial right, such as an exclusion (tahjir) right.
1157. It is not allowed to perform moqāssah using the opponent’s asset if it was jointly owned by him and a partner, unless with the partner’s permission. On the other hand, the fact that a misappropriated asset is jointly owned by two people does not stop one of the two partners performing moqāssah on the misappropriator equal to his share, including if the misappropriator is his partner.
(D) Selling the debt
Although some goods may be a debt owed by the merchant who is exporting them, buying them is often sought after; the Shari’ah has allowed – on the whole – dealing with debts by buying and selling them when they are still owed by the debtors. The details of this are as follows:
1158. Owed debts (dayn bith-Thimmeh) are of two kinds:
1- What becomes a debt at the time of selling it, such as if Muhammed sells a certain car to ‘Ali, but the car itself is not physically present when selling, rather he will deliver it later, and ‘Alī buys this car for an amount of money that is not physically present but which he will bring later. This makes each of the car and the money a debt owed by one of them to the other, becoming two debts through the sale itself, having not been owing each other anything before. This is called ‘selling something that shall be owed for something that shall be owed’, or ‘debt through sale’ or ‘debt through a contract’. However, such a category of sale is not limited to the situation where both of the exchanged assets are to be owed; one of them may be a debt through a contract and the other physically present when contracting, which makes it an example of the loan sale or postponed sale that were explained before. This type of debt through sale is allowed in all its forms, except when it contradicts some of the necessary conditions that must be met in it, as is the case in the loan sale and the like. That said, it is better to abstain from selling something that will be owed for something that will be owed, especially if they are postponed.
2- What is a debt before the sale is carried over to it: what is not allowed in this kind is ‘selling a debt for a debt’ in particular, i.e. when the two exchanged assets are debts before the contract, whether they were due immediately on the debtors or postponed, or whether one is immediately due and the other postponed. So it is not allowed for one of the creditors to sell his debt for the other’s debt, whether one sells to the other or they sell using their assets assigned to other parties. For example: Sa‘īd owes Samīr one tonne of wheat as a loan postponed for one month and Jamīl owes Zainab an amount of money as a dowry delayed for one month, in this case, it is not allowed for Samīr to sell Zainab that wheat which Sa‘īd owes him for the dowry which Jamil owes her. Also – if Samīr owes Sa‘īd something –it is not allowed that each one of them sells the debt the other owes him for the debt which he owes the other.
1159. A kompiyāleh (IOU = I owe you) or sanad (document) is a written document signed by the debtor, which includes in it his confirmation that he owes a given person a given debt, for a certain period or without a specific time-scale. An IOU is regarded as a document about the debt, without having – in itself – any intrinsic financial weight or value, so if it is damaged when with its bearer, the debtor is not relieved of his obligation as a result of that damage, and no asset loses it value because of that. IOU’s are of two types:
First: What confirms a real debt owed by the debtor signing the IOU to the creditor for whom the IOU was prepared.
Second: What establishes an imaginary debt which has not taken place, but the aim is to give its bearer the power to take money equal to its value from another person or the bank.
And since the IOU allows for benefiting from it before its due date arrives through selling it to a third person or a bank, so as to make that third person the creditor who has the right to claim the debt from the debtor when its due date arrives, the ruling regarding such sale is as follows:
In the first type, the creditor who has the debt document is allowed to sell it to whoever is interested, such as people, banks or other organisations, for less than its value, whether the debt sold is immediately due or postponed, and whether a postponed debt is sold for the same type or not, and for an immediately due sale or a postponed-payment one. That said, one must be cautious not to fall into what may be an example of ‘selling a debt for a debt’, and also cautious to avoid what is not allowed to sell among things that are measured by weight (wazn) or by measure(ing vessel) (kayl), especially within a loan sale, which are matters discussed in previous chapters.
The second type is not allowed as a sale, since the document does not include any intrinsic financial value, nor otherwise, but the transactions will then be a loan that is given to the IOU bearer; therefore, in the case of selling the IOU to the bank on the basis that the bank pays less than what the bearer would get from the person who owes the debt represented by the IOU when the date arrives, this is regarded as a loan at interest. In addition, the person who will be paying off the loan to the bank is the person who owes the debt represented by the IOU, not the one who benefits from the loan, something which makes transferring the payment of the debt onto him like ‘transferring onto the obligation-free party’, which may lead the person who owes the debt represented by the IOU into paying interest when he wants to take its value from the beneficiary after the bank turns to that beneficiary for it.
1160. It is possible to avoid ribā (interest) in the second type of an IOU sale in several ways, the best of which are the following two:
a- The bank – upon agreement with the IOU bearer – regards what it cuts out of the IOU value not as interest on the loan, but as payment for the bank’s registration of the debt, and its collecting and similar services.
b- If the person who owes the debt represented by the IOU – after the bank turns to him to claim the whole of the IOU value – turns to the beneficiary and takes the whole of the IOU value from him, this is valid if it is done on the guaranteeing (Damān) basis, which is: since the beneficiary had directed the bank to the person who owes the debt represented by the IOU for the value mentioned in it, the meaning of this is that the beneficiary will guarantee for the person who owes the debt represented by the IOU the whole of the mentioned value after the beneficiary has become the person who owes him an amount equal to that, even if what he took from the bank was less than the IOU value; in this case he avoids interest.
(E) Bankruptcy (falas/iflās)
Bankruptcy (falas or iflās) is the state in which the debtor fails to pay off his many debts, which total are more than the assets that he owns and which are not needed for his living costs. This is in contrast to what is included in the ‘debt exclusions’ that was explained in no. 1137.
1161. There are many ways in which creditors may deal with the bankrupt – after bankruptcy has been confirmed:
1- The creditor may relieve him of his obligations, or wait until he becomes capable of paying.
2- Some, or all, of the creditors may press in their claim to pay off their assets. Here are two probabilities:
a- The debtor may arrive at a mutual agreement with them on the basis of which he gives each one of them some of what he possesses, provided that they stop claiming the rest from him until he can or relieve him of it.
b- They indict him, something that is carried out by the creditors – all of them, or some of them if the debt of that part of them is more than the bankrupt’s assets can meet – by asking the Islamic authority to indict him over his assets, and if he indicts him, the bankrupt can longer dispose of his assets and the Islamic authority arranges to distribute what he has to the creditors in a special way.
1162. Indictment for bankruptcy is not confirmed unless certain matters exist:
1- His debts are confirmed through the Shari’ah route. But if some of them are disputed and some confirmed and his assets are not too short for paying off the confirmed part, indicting him would not be valid in that time.
2- All the debts for which his assets are insufficient to pay them off are immediately due. So if some of them are postponed, he cannot be indicted, even if his assets will be insufficient to pay them when they become due.
3- The creditors ask the Islamic authority to indict him, as in the previous manner, for the creditors have no right to do this without turning to the Islamic authority, just as the authority has no right to do it without the creditors, unless he is one of the creditors, or if he is a guardian of one of them who is an orphan or insane and his debt – on its own – is too large for the debtor’s assets to meet.
1163. If the authority orders the indictment of the bankrupt, the bankrupt will not be allowed – from that date – to dispose of his assets of all kinds, whether the disposal is an exchange such as selling or renting, or without exchange such as waqf and gifts; and all of them (his assets) are now connected to the creditors’ rights in order to pay off some of the debt owed to them. However, his disposal of his assets before the indictment is valid and executable. That said, if after declaring bankruptcy and before his indictment the debtor takes his assets – all of them – out of his ownership through a mutual agreement (solh) or gift (hibah) so that he escapes his creditors – especially if there is no hope in getting another asset to pay off his debts, in this case a ruling validating his disposal of his assets is not clear-cut.
1164. If an asset comes into the ownership of the bankrupt, after his indictment, through things like inheritance, gifts or possession, the ruling will be:
1- If he becomes able to pay off the creditors, in this case the indictment is invalidated and he must pay off his creditors in the manner we explained before.
2- If the assets he has, including the new ones, continue to be insufficient to pay off his debt, in this case the new asset will not be subject to the indictment order that was declared before possessing it. However, the creditors are allowed to request from the authority to include the new asset with the other indicted assets.
1165. All creditors are equal in that each one of them must take some of his debt according to the ratio of his share; so it is not allowed – after the indictment – for one of them to take the whole of his share, whether through moqāssah or with the acceptance of the debtor also, the debtor is not allowed to give him preference over the rest of creditors, without any distinction in this being drawn between the creditors of a living or dead bankrupt, and without distinction regarding the dead bankrupt’s creditors, between whose asset was part of the estate and those whose asset was not.
1166. The right to claim from the existing assets is exclusive to his creditors when he is indicted, so they are not to be joined by those to whom the bankrupt admits – after the indictment – of a past debt or asset, despite this admitted debt or asset being suitable for claiming as far as he (the bankrupt) is concerned. However, if after dividing his assets, someone comes up who has the right to claim payment of another debt, the division is invalidated and the new creditor will share the bankrupt’s assets with them according to the ratio of his share.
1167. The bankrupt is not relieved of his obligation towards what remains of the debts by his indictment and the division of his assets, but he is obliged to pay off the rest when he can, even if after a long time; even after the death of the bankrupt, his heirs must pay off his debts from his estate before distributing it according to the will and to his heirs.
1168. Excluded from the equal status of the creditors in the bankrupt’s assets are these special cases:
1- If the existing asset is subject to a shar’i right of zakāt or khums, in this case it is obligatory to take it out before dividing, unless this right is a debt owed by him and due from him in the past and without any connection with the existing assets, in which case it is to be included in the division like the rest of debts.
2- If some existing assets are mortgaged with one of the creditors, in this case this creditor has priority in them, so he takes from them the whole of value of his debt and returns the rest to the other creditors.
3- If in the assets of the bankrupt there exists an asset that he bought without paying for it, the seller [– after the buyer's bankruptcy – will have the choice of invalidating the sale and taking back the asset or of going through with the sale and joining the creditors in the division of the estate – this is the example of the bankruptcy choice (khiyār at-Teflīs) that we explained before. The same applies to loans when the lender finds his exact asset among the bankrupt’s assets; in this case he has the choice of backing down from the loan and taking the asset, or of going through with the loan and joining in the division.
1169. Bankruptcy choice is not conferred in a sale or a loan unless the debt was immediately due, even if before the division, and provided that the asset is not one of the debt exclusions, and that the asset does not change to something else, such as if the bankrupt had planted seeds or the chick had become a chicken and so forth.
1170. The immediate usage of the bankruptcy choice is not obligatory as long as the delay does not delay the division; but if it does delay it, the person making the choice must hasten to decide and choose one of the two options, and if he does not do so, the authority may call him and ask him to choose, and if he refuses, the authority will force him into the division and pay his share to him.