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Project Fellow Weekly -  Issue 222    

 

WHAT'S THE LAW 

  

 

 

  

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Debts and Shmitta Part II

"At the end of seven years (the end of the Shmitta year) you shall institute a 'release'. This is the matter of the 'release': Every creditor shall release his authority over what he has lent his fellow or his brother, for he has proclaimed a release for Hashem" [Deuteronomy 15:1,2].
 
 
In other words at the end of the Shmitta year, a creditor must absolve his/her debtors from repaying the loan.

Five more questions:
  • Are there any types of loans which are not annulled at the end of the Shmitta year?
  • Does Shmitta annul outstanding tuition?
  • May the borrower insist on compensating the lender?
  • What should the lender do if the borrower insists on paying after Shmitta?
  • What should one do regarding money which is owed to him/her by a Jewishly owned bank/firm?

What is the Law?

Please email us with your comments, questions, and answers at [email protected]

 
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Debts and Shmitta

"At the end of seven years (the end of the Shmitta year) you shall institute a 'release'. This is the matter of the 'release': Every creditor shall release his authority over what he has lent his fellow or his brother, for he has proclaimed a release for Hashem" [Deuteronomy 15:1,2].
 
 
In other words at the end of the Shmitta year, a creditor must absolve his/her debtors from repaying the loan.

Some questions:
  • Does this mandate include loans which are due after the end of Shmitta?
  • Are loans automatically annulled or is it necessary for the lender to do so?
  • Need a proprietor annul the debts of customers who purchased merchandise on credit?
  • What is the status of due rent money and/or delinquent bills for services rendered?
  • Does Shmitta interfere with a Halachic Warranted Investments  (see Issue 220 and below) whereby the invested could be absolved from returning to the investor a percentage of the investment he/she would otherwise be required to return?
 
What is the Law?

Please email us with your comments, questions, and answers at [email protected]

 

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Halachically Warranted Investments

How an investor can earn dividends without encountering ribbis:

 

Unless otherwise stipulated, Chazal view an investment, where one party provides the funds (investor) and the second party (invested) actively runs the business as a 50% loan: 50% deposit [Y.D. 177: 2]. (Note: Although 50% is deemed a loan, nevertheless, the entire sum must be used for the investment purposes strictly in accordance with the contractual agreement [Y.D. 177: 30].)

 

Liability: This means that the invested is fully liable for 50% loan even if it is lost due to an unforeseen mishap. The degree of liability for the 50% deposit is shared between the investor and invested. That is, the invested assumes liability for losses due to negligence and the investor assumes liability for losses due to unforeseen mishap. [Y.D. 177: 2]

    

Returns: In terms of splitting the dividends; the invested keeps the money generated from the 50% loan and the investor keeps the money generated from the 50% deposit. As noted above, one may earn dividends off of a deposit [See below].

 

Service Charge: Although, one may earn dividends from a deposit, but a lender may not receive a free or discounted service from the debtor for having advanced the debtor a loan. For the invested to actively invest the 50% deposit on behalf of the investor without receiving compensation for his services, in return for receiving the 50% loan, constitutes ribbis.

Therefore, to ensure that the arrangement does not constitute ribbis, it is imperative for the investor to arrange to compensate the invested for providing the investing services.

Partnerships vs. Investments  

Daniel and Ben partnered to sell camera accessories online. Daniel invested $60,000 into the business while Ben invested $40,000 in to the business. Ben is the active partner.

 

In addition to dividing the returns 60/40, May Daniel demand that the first $5,000 of profits?  

Must Daniel compensate Ben for his services?

   

 

  

What's the Law?
Please email us with your comments, questions, and answers at [email protected].
  
  
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The Answer
 
See Detailed Explanation
 
 


When

At the end of seven years (the end of the Shmitta year) you shall institute a 'release'.

 

The positive commandment to annul debts from loans due takes effect at the end of the Shmitta year; that is right at sunset on Erev Rosh Hashana. This year that would be September 13, 2015 at around 6:27 PM in Jerusalem.  

 

Most Rishonim rule that the negative prohibition of 
he shall not press his fellow or his brother
begins at that time too [Rambam Hilchos Shmitta V'Yovel 9: 1].  

   

Interestingly, Rabeinu Asher ben Yechiel, The Rosh (1250, Cologne, Germany - 1328, Toledo, Spain)
rules that specifically the negative prohibition he shall not press his fellow or his brother begins earlier; that is, at the onset of the Shmitta year (for arguments sake, which fell out on September 25th 2014 last year) [Rosh Maseches Gittin chapter 4 �20].  

 

This concept of annulling loans is called Shmitas Kesafim; releasing monies.

Nowadays

The Torah links the laws of Shmittas Kesafim to the laws of Shmittas Karka, the laws requiring the farmer to leave his/her field fallow during the seventh year. Meaning that the lender is required to release his/her loans when the farmer is required to leave his/her field fallow [Maseches Gittin 36a].

 

Biblically one is required to leave the field fallow when most of the Jewish people are settled in the land of Israel within their appropriate tribal inheritances.

 

As of the writing of this sentence, the prophecy of "and the children will return to their boundaries"

[Jeremiah 31]

 has yet to be realized.  

 

As such, presently, the prevalent custom and ruling remains to regard both the laws of leaving fields fallow and releasing loans as Rabbinic Ordinances. [Choshen Mishpat � 67: 1 See Pischei Teshuva regarding the gravity of not adhering to a Rabbinic Ordinance.]

 

Whereas the laws of leaving fields fallow apply in the Land of Israel, the laws of releasing loans apply to Jews throughout the World[Rambam Hilchos Shmitta V'Yovel 9: 2].

 

{Note: Ramban (1194-c. 1270),, testifies that the Jews who dwelled in the Land of Israel while he lived here adhered to the laws of Shmitta (1267- 1270) [Choshen Mishpat 67: 1].}

How

At the end of the Shmitta year, there is a mitzvah for every creditor to say that he/she annuls any outstanding loans.

 

What happens to one's loans if one does not do annul them?

 

There are two opinions amongst the Rishonim.  

 

Some opine that while the lender transgressed a positive commandment, the loan remains intact.

 

Other Rishonim rule that all loans are automatically void come the end of the year. There is simply a mitzvah for the lender to verbally agree with the reality.  

 

(This is similar to annulling one's chametz, leaven on Erev Pesach. The leaven becomes automatically ownerless even if the owner fails to annul it.) [Rambam Hilchos Shmitta V'Yovel 9: 4].

 

Which Debts?

"Every creditor shall release his authority over what he has lent his fellow..."

 

Shmitta does not interfere with debts that are only due after the end of the Shmitta year

[Rambam Hilchos Shmitta V'Yovel 9: 9].

 

 

Debts which are annulled at the end of Shmitta include loans with and without liens on real estate [see 5. below for exceptions], monetary loans, neighborly loans of consumable objects.

 

Credit owed to stores are not considered what he has lent to his fellow unless the proprietor has sent a bill (or according to some after a designated due date) [Rambam Hilchos Shmitta V'Yovel 9: 11].

 

Similarly, wages due to a worker are not considered what he has lent to his fellow unless the proprietor has sent a bill (or according to some after a designated due date) [Rambam Hilchos Shmitta V'Yovel 9: 11].

 

Loans with designated collaterals which are equal to or exceed the value of the loan are as though the lender has already collected the complete loan. As such, Shmitta does not annul those debts [Rambam Hilchos Shmitta V'Yovel 9: 14].

 

Shmitta interferes with a Halachic Warranted Investment in the following way.

We explained that a Halachic Warranted Investment is such that 50% of the investor's money is viewed as a loan to the invested. The invested is fully liable to repay this 50% regardless of what transpires.  The remaining 50%  is viewed as a deposit. The invested assumes limited liability on the second 50% and in return for the investor taking a risk for losing the second 50%,the investor can charge the invested.  

 

Shmitta annuls the first 50% of the investment which took the form of a loan [Choshen Mishpat 67:3].

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 To Be Continued G-d Willing... 

 

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Note:
 
Although we aim to present the correct ruling, varying details are always important and decisively influence every individual case. Our readers are thus encouraged to present their personal cases to a competent authority and not solely rely on the information provided.  

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