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Islamic Bank’s Action in Case of Client’s Inability to Pay Installments

If a person takes a car loan from an Islamic bank, goes bankrupt and is unable to repay half of the loan, what action does the Islamic bank take and how is it different from the conventional bank’s?

In Islamic finance there are no car loans. If you mean a car financing, this can be done in various ways, most commonly using Ijarah or Murabaha. The rulings for bankruptcy vary according to the product structure, but assuming it is an Ijarah, then if the lessee (the one using the car) goes bankrupt and is unable to pay for the remaining lease period, he is not required to pay the bank for the unused portion of the lease but, depending on the kind of Ijarah, he may be required to pay the bank for the direct loss between the price the bank paid for the car and the price when the bank goes back to the market to sell the car.

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