Q: What are the responsibilities of the borrower to the lender?

A: There is a mitzvah upon the borrower to repay the lender. A person who borrows and does not repay is called “wicked” (Kesuvos 86a; Avos 2:14). Therefore, one should not borrow if he does not have a plan how to repay. Nor may the borrower squander his money so that he will be unable to pay when the loan is due (C.M. 97:4; Ahavas Chesed II, ch. 24).

The borrower is not allowed to withhold payment or stall the lender past the due date if he has the money (C.M. 97:3). If the lender is not present, the borrower is required to make sure that he has money available after the due date to repay the lender when he asks (C.M. 73:8). If the borrower refuses to pay when he is able to, some consider him a thief retroactively (Imrei Bina, Gevias Chov #2).

Conversely, if the lender knows that the borrower is not in a position to repay now, he may not pressure him or behave in a way that will embarrass him (97:2; see Pischei Choshen, Halva’ah 2:8).

Q: Someone mentioned that it is prohibited to lend without witnesses. Is this true?

A: The Gemara (B.M. 75b) teaches that one who lends without witnesses violates lifnei iver and brings curses upon himself. This is because the borrower is liable to deny the loan, and then people may suspect the lender of claiming money falsely. Ravina was careful even when lending to a colleague talmid chacham, who is not suspected of lying, because he might forget having borrowed due to his many responsibilities (C.M. 70:1).

A loan document is best, as it clearly states the amount of the loan and also indicates that the loan hasn’t been repaid (SM”A 70:4).

A number of authorities seek to justify the practice of many people to lend without evidence. Aruch Hashulchan (70:1) suggests that the two know and trust one another; the lender is sure that the borrower will neither forget nor deny. Others suggest that the halacha applies only to one who lends money on a regular basis. Some are lenient for short-term loans or small sums, where concerns are less serious.

It is still preferable, though, to obtain some evidence, especially for large sums or long-term loans.

Q: My friend claims that I owe him $500 for expenses on a trip that we took together. What if I claim that I covered my own expenses or reimbursed him already? What if I admit that I owe $300?

A: The first cases are ones of denial (kofer hakol). Since you are in possession of the money, the burden of the proof is on the plaintiff (hamotzi meichaveiro alav hare’aya). Therefore, you are exempt unless your friend can prove that you owe him. However, Chazal require you to take a simple oath (shevuas heses) that you do not owe him (C.M. 75:7).

The last case is one of partial admission (modeh b’miktzas); you admit $300 of the $500 claim. This is one of the three instances in which the Torah obligates an oath. Thus, you must take a severe oath that you owe only $300, and would only then be exempt from the remaining $200 (75:2).

Nowadays, we strongly discourage taking oaths; beis din would encourage a compromise in lieu of the oath. In the first case of a simple oath, it would be tilted in your favor, whereas in the latter case of a severe oath, it would be tilted in your friend’s direction.

Q: I lent a friend $50. When I asked him to repay, he replied that although he did inquire about a loan, he doesn’t remember whether he ended up borrowing. Does he have to pay? What if he admits borrowing, but doesn’t remember if he repaid already?

A: When a person is uncertain whether he borrowed, he is not required to pay without evidence, even if the plaintiff claims with certainty. Nonetheless, one who wants to fulfill his obligation towards heaven should pay if the lender claims with certainty (C.M. 75:9). This is only meritorious, though, not required (Shach 88:36).

On the other hand, if a person definitely borrowed and is uncertain whether he repaid, the borrower must pay if the lender claims with certainty that the loan was not repaid (75:9).

The rationale for the distinction is as follows: When the defendant is in possession of the money, the burden of the proof is upon the plaintiff when there is any doubt (“hamotzi mei’chaveiro alav ha’raaya”). However, when there is a known debt, the known status quo of debt supports the definite claim of the lender against the uncertain claim of the borrower. Therefore, the borrower must repay the loan if he cannot counter with a definite claim that he already paid (Shach 75:23).

Q: I seem to recall laying out money to cover some shopping for my roommate and that he didn’t repay me yet, but I don’t remember clearly. Can I demand the money?

A: Since the lender is uncertain in his claim, if the roommate definitively denies the loan or claims that he definitely repaid, he is exempt and does not even have a moral obligation to pay or a requirement to swear (C.M. 75:17). If the roommate acknowledges a certain amount, he must pay that amount and is exempt from the remainder (see 75:18). Even if the roommate also is unsure whether he borrowed, he remains exempt (SM”A 75:22).

If the borrower admits to the loan, but is unsure whether he repaid, we learned last week that he must pay (75:10). In our case, though, where the lender is also unsure about repayment, there is a major dispute amongst the authorities. Some say that the roommate is obligated like any other borrower who is unsure whether he repaid, while some say that he has only a moral obligation to pay (see Shach 75:18), and others say that he is exempt and does not even have a moral obligation (Taz 75:10).

Q: I lent a neighbor a bag full of quarters, but he lost it before counting the exact amount it contained. How much does he have to pay?

A: If both parties admit to the loan, but neither knows or remembers the sum, the borrower must pay the amount that he is certain about. Some say that there remains a moral obligation to compromise with the lender about the remaining sum, whereas most maintain that there is not even a moral obligation to do so (C.M. 75:18; Shach 75:58).

On the other hand, if the lender claims a definite amount and the borrower does not remember exactly how much, he is obligated to pay the full amount that the lender claims, within reason. This is because the borrower admits partially and is therefore obligated in a severe Torah oath, which he is unable to take. This principle is known as: mitoch she’aino yachol lishava meshalem – since he is unable to swear, he must pay (75:19).

The primary exception to this rule of mitoch is when the borrower is willing and able to pay immediately the amount he acknowledges (heilech). In this case, he needs to pay only that amount and is exempt from the remainder (87:1).

Q: When I lend someone money, can I charge him costs associated with the loan, such as cash advance charges, withdrawal fees, wiring costs, bounced check fees (if the repayment check bounces), etc.?

A: This depends on the nature of the cost. Interest charges that you paid to receive the money, such as cash advance charges, may not be passed on to the borrower. Although you had to pay interest to the credit card company to receive the cash advance, asking the borrower to cover that payment would be taking interest from him on the money you are lending him (Bris Yehuda 9:2).

Costs that are not related to interest, however, such as standard bank withdrawal fees, wiring costs, and legal fees for drafting the loan document, can be transferred to the borrower (C.M. 39:17; 106:1; Pischei Choshen, Halva’ah 2:42). If the repayment check bounces, the borrower is also responsible to reimburse the lender - unless an unforeseen, uncontrollable circumstance made it impossible for him to cover the check. This is because giving a check without coverage is a form of direct damage (garmi) (see Rama 14:5; Pischei Choshen, Halva’ah 2:41).

Q: I took out a loan for business expansion, but I have a wedding to make. May I use the money from the business expansion loan to cover the cost of the wedding?

A: The Shulchan Aruch writes that it is prohibited to borrow money and spend it wastefully so that the lender will not be able to collect (C.M. 97:4). The Taz explains that this is prohibited only if the borrower 1) changes the intended usage and 2) depletes the money.

The implication is that if the person will be able to repay the loan, it is permissible to use the money for a purpose other than the intended one. Therefore, it seems permissible to use the money for the wedding if this will not delay the repayment of the loan.

However, it is prohibited to falsely state the purpose of the loan when submitting a loan application, especially if the lender would not be willing to grant the loan for the real purpose. In addition to lying, this borders on stealing from the lender (see Pischei Choshen, Halva’ah 2:11).

Q: My retail business is low on cash. Can we repay our debt with merchandise instead? Is the merchandise’s worth evaluated at retail or wholesale cost?

A: If the borrower has cash, he is not allowed to turn the lender aside with other items, whether moveable (metaltelin) or real estate. If the borrower does not have any cash, though, he can pay with whatever available assets he has. Nonetheless, the lender is entitled to say that he prefers to wait until the borrower has cash and he does not want to accept payment now with merchandise (C.M. 101:1-4; Pischei Choshen, Halva’a 4:10).

If the payment is made with merchandise, it is usually not evaluated at the retail cost (unless the lender was interested in purchasing such an item anyway). Rather, the merchandise is evaluated by the amount that the lender could receive by selling it relatively quickly at the current time and place, in order to convert it to cash (C.M. 101:9). Therefore, the merchandise would generally be evaluated at the wholesale price that the lender could receive by selling it to a vendor, or the price that he could obtain selling it on eBay or the like.

Q: I lent my neighbor money. He honestly does not have money to repay me, but he has a house, a car, furniture and clothing. Is he obligated to sell personal assets to repay the loan?

A: In principle, a person is required to repay his loan even from personal assets. Similarly, beis din can collect these assets or sell them to enforce payment.

However, the Torah teaches (regarding a person who pledged to the Temple) that we allow the person to retain a certain minimum amount for his own support. This is known in halacha as siddur nechasim. We allow a borrower, similarly, an amount to cover his own food for a month, clothing for a year, and basic household furniture. We also allow him to retain two of each of his professional tools. This would include his car, if integral to his profession (C.M. 97:23).

A person is also obligated to sell his house in order to repay his loan, even if the loan is relatively small compared to the value of the house (Shach 97:14; Rama 104:3). However, if he can rent the house, he might not be required to sell it, but can repay from the rental income (Pischei Choshen, Halva’ah 2:22).

Q: A Jewish debtor filed for bankruptcy. Does the settlement exempt him also from his Jewish creditors according to halacha?

A: Bankruptcy settlements generally entail compromises on the part of the creditors to accept partial payment of their loans. For a compromise to be binding in halacha, it must be accompanied by an act of kinyan (acquisition) to give it binding status (C.M. 12:7). In addition, there is a discussion whether a compromise that was coerced on the other party is valid (12:11).

However, if the person actively took part in the settlement process, this is indication of his agreement to the settlement. Therefore, only if the creditor made a kinyan and took an active part in the bankruptcy settlement, the borrower would be exempt according to halacha. Otherwise, the debt remains, even if a long time passed from the loan (98:1). Nonetheless, since the bankruptcy settlement has secular legal status, some maintain that the rule of dina d’malchusa dina applies here (Igros Moshe C.M. 2:62; see, however, Chelkas Yaakov C.M. #32).

Furthermore, for loans involving businesses, there is an additional consideration of the common commercial practice (minhag hasocharim) (Pischei Teshuva 12:19; Pischei Choshen, Halva’ah 2:26).

Q: I took out a loan in my own name for a small joint business venture. If the venture fails and the loan has to be repaid from personal assets, does my partner have to repay half the loan?

A: If one partner borrows for the purpose of a joint business, the other partner is also obligated, even though he did not participate in procuring the loan. This is because the first partner is viewed as an agent of the second partner, provided that the second partner admits that the loan was taken on behalf of the business or that there is proof for this (C.M. 77:2).

The Rama, however, follows an opinion that if it was not evident at the time of the loan that the loan was taken on behalf of the partnership, the second partner carries no personal liability, even if he later admits that the loan was taken on behalf of the partnership.

The consensus of later authorities is: If the loan was explicitly taken on behalf of the partnership, if the first partner borrowed the money upon the instruction (or with the consent) of the second partner, or if the money was invested directly in the partnership, the second partner is obligated (Shach 77:9; Nesivos 77:4).

Q: Under what conditions can I ask to freeze the assets of my debtor?

A: If the creditor suspects that the debtor will hide his assets so that it will not be possible to collect the loan when it becomes due, beis din should freeze the assets if the concern seems real. Similarly, if the borrower is squandering his assets or wants to leave the country before the loan is due, the lender can demand that the borrower pay him or establish a guarantor (C.M. 73:10).

The Shach (73:34) cites the Maharshal, however, that if the borrower is not squandering his assets but experiencing great financial difficulties, the creditor cannot do so before the loan is due. [Once the loan is due, though, Aruch Hashulchan (73:15) writes that we freeze even in this circumstance.] The Shach concludes that the application of freezing assets varies from place to place and depends on the determination of the beis din.

Some authorities permit freezing assets in a secular court when there is clear basis and there is concern for loss, such as if the borrower will squander his assets before there is chance to adjudicate in beis din (Pischei Choshen, Halva’ah 6:nt. 12). It is preferable, though, to get permission first from beis din when possible.

Q: I signed on a loan as one of two guarantors. Under what circumstances is the creditor allowed to seek payment from me?

A: A creditor may not collect from the guarantor before adjudicating with the debtor, even if he does not have known assets. If the debtor is away and unreachable, if he does not respond to the summons, or if beis din ascertains that he does not have assets to repay, then it is possible to turn to the guarantor (C.M. 129:8-11). However, if the creditor stipulated explicitly that he “can collect first,” from whomever he wants, he can turn to the guarantor directly even if the debtor has known assets (129:14).

Nowadays, there is generally a formal guarantee contract signed by the guarantor, stipulating the terms of the guarantee. There are also rules defining when the creditor can initiate proceedings against the guarantor. Any stipulated conditions are binding (129:13).

It is a great mitzvah to help another secure a loan. At the same time, it is important that a guarantor be aware of the legal terms of the guarantee and the extent of his liability. He should also be realistic about his ability to pay if the borrower should default for any expected or unexpected reason.

Q: Someone lent me money many years ago and never bothered asking for it. Must I still pay, even though many years have passed and the lender totally forgot about the loan?

A: In principle, there is no statute of limitations on a loan. However:

1) Some authorities maintain that if the lender does not ask for payment, the borrower is not required to initiate payment of his own accord. However, if the lender ultimately demands the loan, even many years later, it must be paid. Others maintain that, regardless, the borrower has a personal responsibility and mitzvah to pay his debts (see Shach 232:2; Pischei Choshen, Halva’ah 2:4).

2) If the lender abandoned hope of reclaiming the loan, there is a dispute whether the concept of yei’ush (despair) exists regarding a loan. Many authorities maintain that the concept of yei’ush does not apply to loans and they remain in force even after yei’ush (see C.M. 98:1; Rama 163:3; Pischei Choshen, 2:29).

3) If the loan was granted in a commercial setting, the concept of minhag hamedina (common commercial practice) would apply (Pischei Choshen, 2:ftnt. 72).

Q: Do inheritors have a responsibility to pay their parents’ loans with assets from the estate or with their own assets?

A: Inheritors are obligated to pay their parents’ debts from the estate (B.B. 157a). In the time of the Gemara, there was a legal lien only on inherited real estate [although there was a mitzvah of kibbud av v’em to pay even from moveable items]. However, the Shulchan Aruch writes that nowadays there is a legal obligation to pay also from moveable items and cash (C.M. 107:1).

Furthermore, the inheritors have to pay from debts owed to their father that were collected after his death, including bank accounts. However, the creditor does not collect from assets that came to the father only after his death, e.g., subsequent inheritance from another, a raffle ticket, etc.  (Rama 104:16; Pischei Choshen Halva’ah 9:ftnt. 10).

Regardless, the children are not responsible to pay parents’ debts from their own assets. If the father was negligent in not having repaid, though, it is meritorious for the children to settle with the creditor (Aruch Hashulchan 107:2).

Q: I took a short-term loan of $4,000 from my neighbor. To assure him that I would repay promptly, we agreed that if I wouldn’t pay back in two months, he could take my car, which is worth $10,000. Is such an obligation valid?

A: This kind of exaggerated, conditional obligation is referred to in halacha as asmachta (B.B. 168a). This means an obligation that was made just to reassure the lender that the borrower will repay. An asmachta obligation is not viewed as a serious commitment and is not binding (C.M. 207:2,13).

An asmachta obligation is valid, however, if it was made (or if stated that it was made) with a kinyan sudar in a reputable beis din. In this case, we view the obligation as one that was meant seriously (207:15). Alternatively, if the agreement stipulated that ownership of the car is retroactive to the time of the loan (mei’achshav), the Shulchan Aruch does not consider it asmachta, whereas the Rama does (207:14).

In a case where the borrower obligates himself to reimburse any collection costs, some authorities maintain that this is not considered asmachta, since the borrower caused the lender an actual loss (SM”A 61:12; Pischei Choshen, Halva’ah 2:ftnt. 105).

Q: I run a debt-purchasing agency, buying delinquent loans and collecting them. What are the halachic issues involved with this?

A: There are three main halachic concerns: the prohibition of “lo tih’yeh lo k’nosheh” (do not be an [oppressive] creditor), ribbis (interest), and litigation in secular courts.

1. A creditor is not allowed to pressure the borrower to repay when he knows that he is unable to. It is even prohibited for the creditor to present himself before the borrower, which will cause him shame (C.M. 97:2). However, this applies only if the creditor knows that the borrower is unable to pay; if he is unsure, he is permitted to demand the loan.

2. If the loan entailed prohibited ribbis and you bought the loan, you are not allowed to collect the interest. Moreover, even if the original loan was from a non-Jew to a Jew, you would not be allowed to collect any interest that accrued after you purchased the loan (Rama Y.D. 168:10). Your having an all-purpose heter iska would not help here, since it was not part of the original loan agreement.

3. If the debt is clearly owed, it is preferable, if possible, to get permission of beis din in order to litigate in secular courts.