Shmitta annuls loans which are due before Shmitta. This phenomenon is called

shmittas kesafim.

Shmitta does not annul loans which are due after Shmitta [Choshen Mishpat 67: 10].

Examples of loans which Shmitta could annul include but are not limited to:  

1) bank accounts in Jewish banks

2) pension plans with Jewishly owned companies etc.

Meaning, that were one to have a bank account in a Jewish bank before Rosh Hashana, he/she would not be able to withdraw the money after Rosh Hashana as the bank would no longer owe the account holder the money it borrowed from him/her [see below].

3) loans of groceries between neighbors

4) monetary loans between people 

Credit

Shmitta does not annul credit which retailers owe suppliers/wholesaler or wages employers owe employees for performed work.  

Such debts are considered a loan only once the supplier/ wholesaler or employee sends a bill, tallies up the amount due or designates a due date preceding the end of the Shmitta year.

Interestingly, Rambam and Sm"a rule that credit which a common consumer accrues with a retailer is considered a loan even if the retailer does not send a bill, tally up an amount due or designate a due date [Choshen Mishpat 67: 14, 15 Sm"a 26].

Note: There are Rishonim who maintain that even a common consumer-retailer debt is fundamentally different than a standard loan and as such, Shmitta would only annul it after a payment date is scheduled before Shmitta, a bill is sent, or the bill is tallied before Shmitta. Rav Ovadia Yosef rules this way.

According to Rambam and Sm"a, why is there a  difference between the debts of retailers to supplier/ wholesaler and employer to employee on one side and the debts of the common consumer to the retailer on the other side?

Halachically, a buyer is required to pay for merchandise upon receiving it. A seller who permits a buyer to buy on credit, is essentially extending a loan. Shmitta would annul it categorically.

However, the commercial structure of wholesale purchasing as well as most employment agreements is such, that payment is generally not forwarded upon delivery of the merchandise or completion of the day's work. Instead, retailers and employers generally arrange an alternative payment plan. 

As noted, Shmitta does not annul a debt which is due after the end of Shmitta. Thus, as long as accounts are not due before the beginning of the eighth year, we view them as though their due dates are after Shmitta.

Hence, Shmitta does not annul them unless a subsequent payment date is scheduled before Rosh Hashana, a bill is sent, or the bill is tallied before the end of Shmitta [Rambam, Choshen Mishpat 67: Sm"a 26].

Overdue Wages and Rent

What about overdue wages and overdue rent which are due before Rosh Hashana?

R. Ovadia Yosef rules that Shmitta does not annul them unless a subsequent bill is sent, or the bill is tallied before Rosh Hashana, or a subsequent due date prior to Rosh Hashana is arranged.

R. Chaim Kanievsky brings both opinions.

Overdue wages and overdue rent are not "loan-like" and are not subject to shmittas kesafim.

Wages due before Rosh Hashana are no different than debts from a common consumer to a retailer which are subject to shmittas kesafim in accordance with Sm"a.

Beis Din, Orphans, Tzedaka

Shmitta annuls loans between Jewish citizens. Scripture prohibits a lender or his/her agent to collect an outstanding loan. However, a loan which prior to the end of Shmitta becomes the property of Beis Din, or was given over to Beis Din to collect is not annulled.  

Thus, were one to hand over his/her debts to the court before the end of Shmitta, the debt would not be annulled. The court then may appoint the original lender as their agent to collect the debt [Choshen Mishpat 67: 11].

To illustrate this point, historically Beis Din has assumed authority of the financial dealings orphans who are minors. Hence, Shmitta does not annul loans that are owed to orphans who are minors as their debts are under the authority of Beis Din [Choshen Mishpat 67: 28].

Similarly, Shmitta does not annul outstanding pledges to Tzedaka funds. Tzedaka funds too, are as though they are under Beis Din's authority to collect [Choshen Mishpat 67: 28].

Tuition

What about outstanding tuition?

Tuition is like wages and rent. An outstanding tuition debt is a debt generated in a form other than a standard loan.  

According to R. Ovadia Yosef such a debt would not be subject to shmitas kesafim unless a bill was sent demanding the overdue debt or the school tallied the outstanding balance.

According to Sm"a, if the norm is to pay tuition immediately, then any tardiness is automatically considered a loan and is subject to shmittas kesafim

If the norm is to pay periodically, then Shmitta will only annul those debts which are due before Rosh Hashana.

This would be true of a college, an extra curricula activity group.  

However, upon discussion with numerous Poskim it appears that if the school is a Torah school which is viewed as a public charity, the debt is owed to Tzedaka.

As noted before, Shmitta never annuls debts due to Tzedaka.

It is important to note however, that debts to a Yeshiva, Shul, Shteibel, School, or Seminary which is privately owned would depend upon how the owner views him/herself and how the public views him/her.

If instead of viewing himself/herself as a public Tzedaka manager who must answer to the public, the owner views him/herself as running his/her private business albeit involved in virtuous undertakings; such debts are not viewed as though they are to the public and naturally under Beis Din's authority.

Instead, Shmitta could theoretically annul an outstanding tuition bill shteible dues etc. to such a private establishment in the same manner as it could to debts owed to a college.

The Moral Gift

When Shmitta does annul a loan, after the lender refuses to accept payment, the borrower may insist on returning the money he/she borrowed but must make it clear that it is a gift.

In fact, while the lender is required to tell the borrower that he/she annuls the debt, the sages encourage the original borrower to be wise and decent and gift the lender the sum nonetheless [Rambam Hilchos Shmitta V'Yovel 9: 28 see Derech Emunah of R. Chaim Kanievsky  Shlita § 158]. 

Partnerships

Shared partnership funds which one partner is safekeeping at the end of Shmitta remains within the partnership [Choshen Mishpat 67: 4] 

Biblical or Rabbinic

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.

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].

The lessons of faith and trust in G-d as the sole source of one's livelihood of which the farmer and lender are to internalize during the Shmitta year are so fundamental to the Jew that the rabbis deemed it vital to our existence never to forget the mitzvos of Shmitta while we wandered in exile for which by now has far exceeded the years when the Jewish people were settled in their inheritances within Eretz Yisrael. [Remember: the Jews went into exile because they did not properly adhere to the laws of Shmitta.]

As such, presently both the laws of leaving fields fallow and releasing loans are Rabbinic Ordinances. [Choshen Mishpat § 67: 1 See Pischei Teshuva regarding the gravity of not adhering to a Rabbinic Ordinance.]

The Pruzbal

Shmitta posed a challenge for would be lenders as many began to fear losing their money to delinquent debtors. Would-be lenders desisted from lending, transgressed an aveira and left the needy stranded.

Hillel therefore, enacted the "Pruzbal", a documented affirmation, to enable everyone to give over their debts to Beis Din, whereby Shmitta would not annul the debts.

In accordance with Hillel's enactment (which only applies as long as Shmitta is Rabbinic), the lender need not physically hand over the debt documents to the Beis Din.

Instead, via a "Pruzbal" the lender transfers his/her debts to the Beis Din.

There are numerous Pruzbal forms; two of which are explained below.

Optimally, the lender should understand the concept of shmittas kesafim and pruzbal before making and documenting the affirmation. (See PDF Form 2 "I understand") 

Men and Women

Both men and women who are owed money by Jews need to write a Pruzbal.

Quite often a wife has personal assets which are lent to other Jews. She should either make her own Pruzbal or appoint her husband as her agent to do so on her behalf. When appointing her husband to do so on her behalf, he can include her in his Pruzbal but should indicate in the Pruzbal that he is indeed doing so on her behalf as well.

Form #1 In front of the Court

The lender affirms before the Beis Din that he/she wishes to transfer his/her loans, documented or oral, to the jurisdiction of Court. (Beis Din can then authorize the lender [and usually does] as their agent to collect the debt on their behalf.)

Completing the transference process, the three judges of the Beis Din sign the Pruzbal document.

The Pruzbal must be dated before the judges sign it.

The judges may be related to the lender.

Ideally the lender should keep the Pruzbal as proof that he/she transferred his/her outstanding loans over to the Beis Din. 

Form # 2 In front of Witnesses: for Sephardim & Ashkenazim

Alternatively, instead of appearing in front of the court, the lender can affirm in front of two witnesses that he/she wishes to transfer his/her loans over to a specified Beis Din.

Completing the process, the two witnesses in turn dates and signs the Pruzbal document.

The names of the Judges should be listed in the Pruzbal.

The witnesses must not be related to the lender.

The lender should keep the Pruzbal as proof that he/she transferred his/her outstanding loans over to the Beis Din.  

Which Beis Din

For Ashkenazim; according to the strict letter of the law, any three Torah observant people can form a Beis Din for Pruzbal.

The three should sit down and convene a Beis Din.

The lender should stand up before them, affirm that he/she has outstanding debts which would otherwise be annulled come the end of Shmitta unless Beis Din assumes jurisdiction of the loan and as such, he/she is hereby transferring his/her loans to the Beis Din.

For Sephardim, debts will become annulled unless they are given over to a most highly prestigious Beis Din who has been accepted by the broad public and preferably even has the authority to renounce personal property ownership. Three Torah observant Jews may not simply convene a Pruzbal Beis Din.

Many Ashkenazim try to use such a prestigious type of Beis Din as well.

How do all the Sephardic Jews appear in front of such a prestigious court right before Rosh Hashana?

The old Sephardic custom therefore, is to use the Witness Pruzbal Form, whereby the lender affirms before two witnesses that he/she is transferring his/her loans over to a specific prestigious Beis Din. The names of the judges should be listed.

Ashkenazim may use this form as well.

Power of Attorney

The lender may appoint an agent to make a Pruzbal on his/her behalf. Thus, a wife may ask her husband (and vica versa) to make a Pruzbal on his/her behalf.

Banks

Jewish Banks must arrange a Pruzbal [Derech Emuna 9: 142, Chazon Ovadia pg. 44].

Money deposited in one's account in a Jewish Bank after the writing of his/her Pruzbal may not be withdrawn after Rosh Hashana unless another Pruzbal was arranged after the deposit. If arranging another Pruzbal poses a extreme difficulty, there are ways of making a verbal Pruzbal in front of two witnesses.