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 three levels of kindness

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, "the procrastinating debtor" (al-madin al-mu'attir), to it: it distinguishes the truly insolvent from the debtor able to pay who delays, 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 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 2331): 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

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.