Abu Dawud

Benefits and Issues:
➊
The organization of an Islamic society is such
that charity (sadaqat) is made common and usury (riba) is eliminated.
In contrast, in a secular and atheist society, usury is increased
and there is no regular system for charity.

➋
It is obligatory for distinguished individuals to cooperate with a person who is overwhelmed by debt.

➌
Creditors of an insolvent and bankrupt person will be able to take a share from his present, available wealth in proportion to their debts.
They cannot demand the remainder.
If the sale of an orchard or field is conducted according to the principles of Shariah, then compensating for the loss is recommended (mustahabb),
not obligatory (wajib).

(1) The person whose purchased fruit was destroyed due to a calamity—Messenger of Allah (sallallahu alayhi wa sallam) not only commanded that charity be given to him, but also forbade taking anything more from him beyond what he currently possessed. According to the hadith, acting in this manner is permissible.

(2) The Messenger of Allah (sallallahu alayhi wa sallam) was extremely compassionate towards his companions and indeed the entire ummah. This is why he would continually rectify their affairs and provide them with guidance, and would offer abundant assistance to the poor and needy. If he had any wealth or goods, he would give them to those in need, and if he had nothing, he would instruct the affluent companions (radi Allahu anhum) to cooperate and give charity.

(3) From this hadith, it is also understood that if a person’s wealth or fruit, etc., is destroyed by a terrestrial or celestial calamity, it is permissible for him to ask for help to the extent of his need. Asking for more than that is not permissible. Furthermore, it is not allowed to demand repayment of a debt from a destitute or calamity-stricken person, nor to imprison him, nor to pursue him constantly. This is the view of Imam Malik, Shafi’i, and the majority of scholars. However, it is necessary that the person in hardship is not someone who borrows from people and then squanders it.

(4) Apparently, this fruit must have been purchased while still unripe, and the calamity struck before it ripened. At that time, the Prophet (sallallahu alayhi wa sallam) had not yet prohibited the sale of unripe fruit. Or it is possible that the fruit was purchased at the proper time, but calamity can strike suddenly—rain, wind, etc., can also destroy fruit. The command to waive the loss also applies to such fruit that was purchased at the proper time but was still lost.

Urdu marginal note:
The decision regarding someone being insolvent is made by the government. The rulings of insolvency will only apply when the government formally declares his insolvency. No individual can declare himself insolvent on his own accord.

1:
One opinion is that this refers to Mu'adh ibn Jabal radi Allahu anhu.

Benefits and Issues:

➊ If a person is burdened with so much debt that he is unable to repay it, then he should be assisted through charity. Such a person may also be given zakat.

➋ If the debt is substantial and, even with the help of others, it is not possible to collect enough to pay off the entire debt, then whatever amount is available should be distributed among the creditors in proportion to their debts. For example: If a person has only half the amount of the total debts, then each creditor should be given half of what he is owed.

➌ After collecting as much as is reasonably possible, no further demand can be made from the bankrupt individual.