Praise be to Allah, and may peace and blessings be upon the Messenger of Allah.
Islamic law has strongly emphasized the seriousness of debts and has forbidden delaying their repayment when one is able to pay. The Prophet ﷺ said:
“The delay in repayment by a wealthy person is ظلم (injustice).”
Narrated by al-Bukhari and Muslim.
Taking a loan while intending not to repay it is also among the major sins.
The Prophet ﷺ said:
“The soul of the believer is suspended because of his debt until it is paid on his behalf.”
Narrated by Ahmad and al-Tirmidhi; scholars considered it a sound hadith.
The meaning of the believer's soul being suspended because of his debt is that it is held back from its honored position or from complete bliss and ease because of the debt. It does not necessarily mean that the soul is being punished in the Fire.
Therefore, it is recommended that the heirs hasten to pay the deceased's debt, whether from his estate or from other funds.
As for someone who borrows money while intending not to repay it, or who is capable of repaying but deliberately delays payment, then he has combined a violation of the right of Allah تعالى and a violation of the right of the person who owns the money. This is a form of injustice and consuming people's wealth unlawfully.
The Prophet ﷺ said:
“Whoever takes people's wealth intending to repay it, Allah will repay it on his behalf; and whoever takes it intending to destroy it, Allah will destroy him.”
Narrated by al-Bukhari.
If a person dies while owing rights to other people, his debts may be paid from his estate, the creditor may forgive him, or the wronged person may be compensated on the Day of Judgment from his good deeds.
The Prophet ﷺ said in the hadith of the bankrupt person:
“If his good deeds are exhausted before what he owes has been settled, some of their sins will be taken and placed upon him, and then he will be thrown into the Fire.”
Narrated by Muslim.
However, a debt is not disbelief. Whoever dies affirming the oneness of Allah and does not regard consuming people's wealth unlawfully as permissible remains among the Muslims and will not remain eternally in the Fire like the disbelievers.
Allah تعالى says:
“Indeed, Allah does not forgive associating partners with Him, but He forgives anything less than that for whom He wills.”
[Qur'an 4:48]
Thus, the person who commits a major sin while remaining a believer in Allah's oneness is under Allah's will: if He wills, He may forgive him; and if He wills, He may punish him according to his sin. Then his final destination will be Paradise, and he will not remain eternally in the Fire as the disbelievers do.
The suspension of a believer's soul because of a debt does not mean that he will remain eternally in punishment. Rather, it means that the soul is deprived of complete bliss until the debt is settled.
If a Muslim enters the Fire because of his sins and the injustices he committed against others, he will not remain there eternally as long as he died upon monotheism. Rather, he will eventually leave it through the mercy of Allah.
And Allah تعالى knows best.