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).