Q. 1. What is the obligation of a Catholic after having declared a personal bankruptcy?
A. 1. Fr. Jone in his Moral Theology, page 259, describes what is allowed by natural law:
"The natural law allows an insolvent person to retain what is required to modestly support himself and his family according to their social status and to establish a small business… To retain more than this is an injustice and makes one subject to restitution…
In other words, it is morally legal to declare personal bankruptcy, providing that it is truly impossible for a Christian to pay one’s creditors, and provided that he/she honestly declares all of his/her assets.
At the same time, it does not necessarily mean from the above that the person who is declaring personal bankruuptcy, that he/she is freed from all obligation in conscience to make restitution to his creditors.
This is especially true when a Christian deliberately brought on the bankruptcy through negligence in the administration of his finances, by failing to regularly pay his bills, by living beyond his means or by racking up high credit card debts. Such a person has an obligation in conscience to provide restitution, even after bankruptcy has been declared.
According to Prummer, II, page 210, theologians teach that when a bankruptcy is brought on by grave fault or fraud on the part of the bankrupt, then the duty of restitution remains, to be implemented as soon as it becomes possible to do so.