When is a bankrupt person (Mufllis) subject to judicial sequestration (Hajr)?
General Chapter
Al-Mughni
Book of the Insolvent (Bankruptcy)
Primary text
A bankrupt person is subject to sequestration by the ruler (Hakam) only after his creditors petition the ruler and establish their claims, either through the bankrupt's admission or by evidence. If the bankrupt's assets are sufficient to cover the debt, sequestration is not imposed; instead, he is ordered to pay. If he refuses, he is imprisoned until payment is made, or the ruler may sell his property to settle the debt if necessary. If his assets are less than his debts, and the debts are deferred (mu'ajjalah), sequestration is not imposed as immediate demand is not possible. Similarly, if some debts are immediate and some deferred, but the assets cover the immediate claims, sequestration is not imposed.
Supporting text
Some Shafi'i scholars suggest sequestration if signs of bankruptcy appear, indicating assets barely cover debt and immediate maintenance needs, treating this as a deficiency. However, the primary view holds that if assets suffice for immediately due obligations, sequestration is unnecessary. Sequestration is only mandatory if all debts are immediate and the assets are insufficient to cover them, and this must be initiated upon the request of the creditors, as the ruler has no independent authority to impose it for the creditors' right. If creditors disagree on seeking sequestration, the request of any claimant must be honored.