Debt-for-Debt Sale Is Impermissible

23-2-2020 | IslamWeb

Question:

In my country debts can be sold to debt agencies. These agencies are eager to recover anything. The customary way of dealing with them is to negotiate your debt if you’re in hardship. If I make them an offer and they accept it is this halal even if the offer I make it low? But they still accept?

---

Answer:

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad, sallallaahu 'alayhi wa sallam, is His slave and Messenger.

It is permissible to deal with such agencies and their like only to collect debts from the debtors in return for a commission payable to the agency and specified in the contract. However, it is impermissible to sell the debt to such agencies, because selling the debt for cash, i.e. debt-for-debt sale, involves Riba Al-Fadhl (type of Riba that involves increase in either of the two articles subject to exchange) and involves Riba An-Nasee’ah (an increase in the loan, i.e. amount due, in return for a delay in payment). This is because the debt purchaser pays less than what he would receive (the face value of the debt) in the future. Ibn Rajab said: “It is impermissible to sell a cash debt for cash, and there is no scholarly difference of opinion in this regard.” [End of Quote]

The resolution of the Islamic Fiqh Council reads: “It is not permissible to sell a deferred debt by a non-debtor for prompt cash from the same type of wealth or otherwise, because this results in Riba. Similarly, it is impermissible to sell a debt for deferred cash from its type of wealth or otherwise, because this is a kind of debt-for-debt sale, which is forbidden according to the Sharee‘ah. There is no difference in this regard whether the debt is the outcome of a loan or a deferred sale agreement.” [End of Quote]

Allah knows best.