It is forbidden to refuse to grant a loan to a needy person in advance of the Shemita ("sabbatical") year (Debarim 15:9). As the end of the Shemita year automatically cancels outstanding debts, prospective lenders might be hesitant to offer loans as the end of the seventh year approaches. The Torah nevertheless requires capable lenders to grant loans to the poor despite the likelihood that the debt will never be returned due to the cancellation that takes effect after the Shemita year.
The Talmud tells that during the time of the great sage Hillel, wealthy Jews were unwilling to lend money to their less fortunate brethren as the Shemita year approached, in violation of this Halacha. In order to rectify the situation, Hillel enacted a provision called a "Prozbul," a shorthand reference to the phrase, "Proz Bol U’muti" – "an enactment for the rich and poor." This provision, which circumvents the law of "Shemitat Kesafim" (the cancellation of debts), assists both the wealthy – by ensuring that their loans are returned – and the poor – by encouraging the wealthy to continue lending even in advance of the Shemita year. The Prozbul is a document signed by the lender declaring that all outstanding debts are transferred to a Bet Din (Rabbinical court). Since the law of "Shemitat Kesafim" affects only private lenders, and not public bodies such as a Bet Din, the loans transferred to the court are unaffected by the end of the Shemita year. The lender may then collect his loans as an agent of the Bet Din.
Halacha does not require a person to write and sign the Prozbul document in the presence of the Bet Din. Instead, he may simply declare in the presence of two witnesses that he transfers his loans to the Bet Din, and then have the witnesses sign the document affirming that this declaration was made. (Of course, the lender must also sign the document.) Preferably, the document should specify the Bet Din to which the loans are transferred, and name the three judges comprising the court.
A Prozbul may be signed at night; even though Bet Din does not convene at nighttime, the document may be prepared during the night.
A Prozbul document is valid even if the lender is a family relative of the witnesses signing it and/or the judges to whom the loans are transferred.
The Prozbul document may be signed at any point during the month of Elul. Even though the document does not cover loans granted after it is signed, nevertheless, one may collect loans given after signing the Prozbul. The reason is that unless stipulated otherwise, a borrower does not need to return a loan until after thirty days have passed from the time he received the money. Since the law of "Shemitat Kesafim" applies only to debts that are due before the end of the Shemita year, any loans given after the first of Elul are not affected by this Halacha. Hence, so long as one writes a Prozbul at some point during Elul, he may collect all his debts after Rosh Hashanah without concern.
Summary: During the month of Elul of a Shemita year, one who is owed money must sign a Prozbul document, whereby he transfers his loans the Bet Din, which allows him to then collect the loans after Rosh Hashanah. He must make a declaration to this effect in the presence of two witnesses, who then sign the document. The document should preferably specify the name of the Bet Din and the names of its judges. One may sign the document either by day or by night, and it is valid even if the lender is a family relative of the signatories or the judges.
Visit www.iTorah.com to download the Prozbol form.