Loans and Debt In Halakha

 

The Torah specifically commands us to help our fellow man with free loans:

 

"If you lend money to my people, to the poor among you, don't be like a creditor to him, don't impose interest on him.  If you should pawn your fellow's garment, return it to him by nightfall" (Shemot 22:24-25.)

 

We might think that helping a needy person with charity would be an even greater kindness, but our tradition clearly indicates the opposite.  Giving a loan is considered a greater mitzva than giving charity, so much so that the Hebrew word for a free loan is a "gemach" – an acronym for "gemilut chasadim," meaning "granting kindness."  This linguistic identity points to a cultural reality, that giving a loan is the basic act of mutual aid in Judaism.

 

This special importance is not solely because the lender gains no benefit from the loan.  In fact, making a business partnership with a needy person, where there is an expectation of profit, is considered on an equal level with a loan.  "The greatest level of charity, with nothing higher, is to strengthen the hand of a weakened Jew, giving him a present or a loan or starting a partnership, or giving him work" (SA YD 249:6.  While a present is also mentioned, the intention is not a handout but a regular present like those given among equals, where there is an expectation of reciprocation.)

 

FAITH IN OUR FELLOW MAN

 

One reason we can identify why a loan is even more beneficial than a handout is that it indicates that the lender has faith in the borrower.  In this way it provides not only material but also moral support.

 

This faith has two aspects.  On the most basic level, giving a loan shows faith that the borrower is an honest person who won't disappear after receiving the money.  But a loan also shows the lender's faith that the borrower is a SUCCESSFUL person – one who, though he has fallen on hard times, is sure to recoup his losses and find himself earning a respectable income.  Often the monetary difficulties caused by financial setbacks are the least of one's problems.  A few bad seasons in business or losing a job can cause a person to become discouraged about the future and lose hope.  The encouragement provided by the lender's faith in the borrower may be even more important to the needy person than the money itself.

 

A FELLOW, NOT A SLAVE

 

This aspect of encouragement is particularly evident in the various limitations on collecting a loan.  The passage we cited states, "Don't act like a creditor" towards the borrower, enjoining one not to hound him for repayment if you know he can't pay (Rashi.)  Other limitations on collection include the rules which prevent collecting from possessions which are essential to the borrower's livelihood, including the subsequent verse which indicates that we may not take the borrower's garment as a pledge unless we return it when he is in need of it.

Indeed, in ancient times the borrower himself, or his family members, were themselves pledged to a loan and could be enslaved if a loan was not repaid (Melakhim II 4:1), and even today debtors may be imprisoned for failing to repay a loan. 

 

Such drastic collection measures contradict the idea of encouraging the downtrodden in two ways.  Firstly, if the loan has the effect of subjugating and demeaning the borrower, it will not be very successful in providing him with moral support.

 

Furthermore, if the lender has ironclad guarantees that he will get his money back, then the loan is not much of a vote of confidence.  But since the lender is limited in his ability to seize assets and can't "lien" the borrower himself, his loan shows his confidence in the borrower's ability to improve his financial situation.

 

Of course the halakha demands that the borrower do his best to be worthy of this confidence, and not make unnecessary expenditures or unjustified gifts that would prevent the lender from recouping his investment.  Of such a borrower Scripture states, "It is a wicked borrower who doesn't repay" (Tehillim 37:21.)

 

FAITH IN THE CREATOR

 

This humanistic theme in lending is matched by a religious one.  The Talmud likens collecting improper interest on a loan to denying the Torah (BM 75b); conversely, the Midrash states that lending money to the needy is comparable to fulfilling all of the mitzvot! (Shemot Rabba on Shemot 22:24 p. 4.)

 

One idea behind these statements is that all of our possessions, and even our very lives, can be considered a loan from the Creator.  While we enjoy our wealth in this world, in the end we have to leave our wealth to others, even as we give up our souls to God.  By being generous and forbearing with our possessions during our lifetimes, we demonstrate that our attachment to them is not excessive.  We recognize that "our" money is not really ours but only a deposit or trust entrusted us by God, in order to carry out His will. 

 

The Midrash likens someone who fails to use his money to alleviate suffering to one who takes from the treasury of a king and uses it to oppress his very own subjects.  Likewise, all of our money is from God, as the Scripture states (Chagai 2:8), "Mine is the silver and Mine is the gold" (Shemot Rabba on 22:24, p.15.)

 

Loans exemplify this faith even more than charity because they particularly demonstrate the concept of stewardship.  A person whose funds are his own is free to dispose of them any way he likes; but the administrator of a fund has a responsibility to maintain the endowment.  Giving a loan with the expectation of getting the money back shows our desire to continue administrating this deposit from God in accordance with His directives.

 

LENDING TO GOD

 

By the same token, God has a particular reason to give a person wealth if He knows that the person will use it according to His will.  The Midrash states that King Solomon prayed, "If You see a person who acts aptly with his wealth, give him [more]," as it is written (Divrei HaYamim II 6:30), "Give to each person according to his ways, for You know his heart" (Shemot Rabba p. 5.)  The book of Mishlei (19:17) states that one who helps the poor "lends to God," implying that the lender is sure to be repaid.

 

THE WHEEL OF FORTUNE

 

A related theme mentioned in the Midrash is that giving loans is a way of acknowledging that we ourselves are subject to God's providence.  A person who trusts in his own might and ability is not worried that he may lose his wealth; but one who recognizes that it is God who "gives strength to act mightily" (Devarim 8:18) is aware that the next time around he may be the one needing a loan.  "For it is a revolving wheel in the world; the one who is rich today may not be rich tomorrow, and the one who is poor today may not be poor tomorrow" (Shemot Rabba p. 3.)

 

 

CHAPTER 180 – RELEASE OF DEBTS

 

We explained in the previous chapter that the Halakha is insistent that the debtor does his best to pay off his creditors.  In seeming contradiction to this emphasis, the Torah mandates a release of debts once in seven years, at the end of the Sabbatical year.  This includes the commandment to release debts when this year passes, the commandment to abstain from collecting these debts (Devarim 15:1-3), and at the same time a warning NOT to refrain from lending money in anticipation of the release (Devarim 15:9-11.)

 

So it seems a bit surprising that despite this stern warning, our Sages indicated that it is commendable for the borrower to return the money regardless.  First it is necessary for the lender to affirm that he is wholeheartedly releasing the debt; only afterwards is it praiseworthy for the borrower to say that "even so," he wants to return the money (Mishna Shevi'it 10:8-9.)

 

It seems even more surprising that the Sages themselves provided a way to evade the release altogether, through the mechanism of the prozbol, a special conveyance whose effect is to temporarily transfer one's debts to the Beit Din, which is not obligated in the sabbatical release (Mishna Shevi'it 10:3-7.)

 

According to Rav Kook, we can begin to understand these halakhot by recognizing that every loan has both a monetary and a personal aspect.  From the monetary side of things, it is certainly fair and proper for the borrower to return the money that he borrowed.  This is the principle that applies to transactions between Jews and non-Jews - the lender gave the money, so the borrower must return it.

 

However, the Torah reminds us that behind this monetary inequality there is a profound personal inequality.  The borrower is simultaneously dependent on the lender as well as subordinated to him through a personal lien (shi'abud haguf), creating a type of "slavery" in miniature.  The Scriptures tell us "The rich man rules over the poor, and the borrower is the slave of the lender" (Mishlei 22:7.)

 

The analogy between debt and slavery helps us understand the release of debts in the Shemitta year.  Just as a Jewish slave is released from work in the seventh year, so a Jewish borrower is released at the end of the seven-year Shemitta cycle.  Indeed, these commandments appear in consecutive passages in the Torah (Devarim 15:1-18).

 

(As we pointed out in chapter 65, it also helps us understand the prohibition against charging a fellow Jew interest.  Just as a Jewish slave may not be excessively subjugated, so a Jewish borrower may not be charged interest.  These commandments too appear in consecutive passages in the Torah, Vayikra 25:35-42).

 

While the halakha certainly affirms the ideal of fairness in monetary transactions, this principle can not be rigidly upheld when it conflicts with the ideal of freedom.  God tells us "For the children of Israel are slaves to Me," and our Sages inferred: "slaves to Me, and not servants to servants," i.e. other human beings (Kiddushin 22b.)  So, once in seven years, debts are released.

 

It is true that when the monetary and human aspects of the loan conflict, the human aspect must dominate.  However, the ideal would be to avoid the conflict altogether.  One way that this can occur is for the lender to assert that he wholeheartedly releases the debtor from his obligation.  Then the aspect of personal subjugation is removed; only the aspect of monetary fairness remains, so it is commendable in such a case to return the money.  (Based on Rav Kook's Ein Ayah on chapter 10 of Shevi'it.)

 

The same objective is achieved by transferring the debts to the Beit Din through the prozbol.  While it is abhorrent for one individual to be subordinate to another, it is understood that all are subordinate to the authority of the Beit Din.  So the prozbol also succeeds in removing the dimension of personal subjugation from the loan, making it possible for the loan to be collected even after Shemitta.