What are the legal consequences upon a debtor being placed under sequestration (Hajr) due to insolvency?
General Chapter
Al-Mughni
Book of the Insolvent (Bankruptcy)
Primary text
When a person owes debts currently due that his wealth cannot cover, and his creditors request the judge to impose sequestration, the judge must comply. It is recommended that the sequestration be made public to prevent transactions with the debtor. Once sequestration is established, four legal rulings become effective: first, the rights of the creditors become attached to the actual assets of the debtor; second, the debtor is prevented from disposing of his actual assets; third, any creditor who finds the specific commodity he sold to the debtor still in the debtor's possession has a right to claim it before other creditors, provided certain conditions are met; and fourth, the judge has the authority to sell the debtor's property to pay the creditors. The basis for this is the narration concerning Ka'b ibn Malik, where the Messenger of Allah, peace be upon him, sequestered the property of Mu'adh ibn Jabal and sold it, as narrated by Al-Khallal.
Supporting text
Some scholars suggest that the creditors of Mu'adh ibn Jabal did not forgive his debt even when the Prophet interceded because they were Jews, and thus they had a right to their claim unless they voluntarily relinquished it. The consensus of the aforementioned scholars implies that the obligation of sequestration and sale is binding regardless of the creditors' faith.