In a word, yes.
But as is often the case, there are some qualifications. The below is an edit of a letter I wrote to a friend a while back. In the course of his pastoral ministry, he had been asked this very question, and responded that bankruptcy is theft, because you’re taking money, promising to pay it back, and then not doing it. Simple, right?
Not so fast…
We have to look at the general equity of the Torah on this point. There are conflicting biblical demands.
On one hand, paying what you promised to pay is Bible 101. Treat others as you want to be treated, love your neighbor, let your “yes” be “yes,” and so on. This much is obvious, and really doesn’t require much more discussion.
On the other hand…
Bankruptcy was possible under Torah. A man (and his family) could be sold into slavery to pay his debts. However, they were only slaves 7 years, and then they were not only released, but sent out with provisions to make a fresh start. There was no prohibition against predatory lending per se in the Torah, but if you lend the guy 20 years’ wages, and he defaults, you only get him for 7 years — so you’re going to lose a lot of money. And don’t forget that all debts are canceled every sabbath year, so that also limits the term of the loan.
Hence the conflicting demands. Under Torah, the debtor is responsible to love his neighbor and honor his word, i.e., to pay his debt. On the other hand, the creditor is also responsible to love his neighbor, and that means not lending a man more than is good for him, thereby subjecting the man to decades of debt slavery (in one form or another). If he tries, he will run up against one of two limitations: the length of term for a debt (sabbath year) or how much wealth he can extract from a man’s slave labor for seven years (either directly, by taking the man as a slave, or indirectly, by selling him as a slave).
So as far as the present-day debtor is concerned, I grant your basic point — a man ought to pay the debts that he agreed to pay. However, God knew that this was not always going to happen, and made provision for it when He set up a civil government. So should we — In Israel, some lenders would be wicked or stupid enough to lend to people they shouldn’t, and some borrowers would be greedy or stupid enough to fall for it. Human nature hasn’t changed, and we need the same sort of protections that Israel had, in one form or another. One could argue about whether our bankruptcy system is a good reflection of the one in the Torah, but one can’t just say that no such system should exist. The protection is meant to be invoked; that’s why it’s there.
Secondly, speaking to the debtor is only telling half the story. If you’re going to preach to debtors about their need to pay up, you should also preach to the creditors about ethical lending. The credit industry in this country deliberately incites people to get themselves into trouble so that they will be subjected to decades of debt slavery. Those debts payable are counted as assets to the creditor, and all he has to do to increase his assets is lend more money to people who can’t afford it (until, as we recently saw, the whole thing crashes). It’s a wicked system. I don’t mean to make the debtor look shiny here; he’s not. Nobody’s putting a gun to his head and making him take out a loan. But his sins and the predatory creditor’s sins make a nasty combination, and if you’re going to sort the thing out biblically, you have to speak to both sides.
Untangling this in a specific counseling situation is a mess. You probably don’t have the option of speaking to the creditor much; you’ll be dealing with the question of whether the debtor should default (chapter 7), reorganize for long-term repayment (chapter 13), or just soldier on with whatever changes he can make on his own (e.g., take a Dave Ramsay or Financial Peace University course, credit counseling, etc.) The thing you must remember here is that bankruptcy law is on the books as a reflection of God’s law; it is right that such a thing exist. There will, therefore, be a time when such a protection should be invoked. It is the role of the church leaders to determine if this is such a time.
If it is not, the debtor should be subject to church discipline if he defaults on his debts, and remain under discipline until he repents and takes steps to repay them. On the other hand, if it is such a time, then not only should the debtor not be subject to discipline; he ought to invoke bankruptcy protection with the blessing of the elders. Bankruptcy is a harsh mercy and it would be better not to need it, but sometimes that ship has already sailed.