Debts: delay, rescheduling and remission

The verse settles the insolvent case: "and if [the debtor] is in hardship, grant him respite until ease; and that you waive the debt is better for you, if you knew" (Quran al-Baqara 280).

The 3 levels of kindness toward the debtor

Whoever grants respite to a debtor or waives the debt, Allah will place him under His shade.

Muslim 1563

• The respite (muhla): a right of the debtor in difficulty; refusing respite to the insolvent is an injustice flagged by the verse.
• Rescheduling: restructuring the debt into instalments fitted to capacity, in writing; AAOIFI devoted its Shari'a Standard No. 3 (insolvency and rescheduling of debts) to it: it distinguishes the truly insolvent from the debtor able to pay who delays (al-madin al-mu'attir), and organizes the handling of each case, up to the sale of the pledge when the debt cannot otherwise be cleared.
• The late penalty, never a profit: AAOIFI Shari'a Standard No. 8 (Murabaha) requires paying any delay compensation to charity, without adding it to the creditor's income: delay may be discouraged, it never yields a gain.
• The waiver (al-ibra'): forgiving all or part: "better for you"; the Prophet (peace and blessings of Allah be upon him) forgave entire debts to his companions and granted respite to those living in ease.

The debtor's rights and duties

• Honesty about one's situation: not feigning insolvency to escape; paying with available means.
• The priority of debts: debts are settled before superfluous spending; the debtor's zakat is computed net of debts (see its page); debts owed to Allah (zakat, kaffaras) are settled too.
• The restraint of the indebted soul: "the believer's soul is suspended by his debt until it is settled" (at-Tirmidhi 1078): the Prophet sought refuge against sin and debt; gratuitous borrowing is discouraged, repayment is a sacred covenant (Quran al-Isra 34: "the covenant will be questioned").
• Debt from unlawful money (gambling, interest): the honest commitment to return it; interest money received: purified through charity (see the bank page).

Declared insolvency of the debtor and after

• Civil procedures (petitions, repayment plans): the Muslim uses them honestly; not fleeing the creditor, communicating, proposing: this is the sunna of payment (the Prophet exceeded deadlines out of generosity, never out of flight).
• Dying in debt: debts precede inheritances (see the debts and funerals page); the Prophet prayed over the debtor for whom someone had stood surety (al-Bukhari 2298): settling a parent's debt is among the best works done in his name.
• Debt owed to Allah (fasts, zakat, kaffaras): recoverable or substitutable according to the rules; heirs or a substitute perform it.

Practical note on debts

The clearing method: list all debts (amount, creditor, urgency), pay the vital minimum first (housing, food), reschedule the rest in writing, and grant the waiver when you are the creditor: this is the complete Quranic ethics of debt.