Do Non-Citizen Debtors Get All the Benefits of Filing Bankruptcy?

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Do Non-Citizen Debtors Get All the Benefits of Filing Bankruptcy?

In a blog last week I said that non-citizens—legal or not—can file bankruptcy. All they need is appropriate identification. But that begs two questions: 1) Would that non-citizen receive all the benefits from that bankruptcy that a citizen would receive?  2) And would filing the bankruptcy hurt a legal non-citizen’s efforts to become a citizen, or would it increase an illegal immigrant’s risk of deportation? 

I’ll address the first of these questions now, and the second one in an upcoming blog.

Two benefits of bankruptcy pertain here:

1. The protection of assets from the bankruptcy trustee (and thus from the creditors) through “exemptions.”

2. The granting of a discharge of debts.

Exemptions:

The rules about what property of a debtor is exempt do not directly change with the debtor’s citizenship status, but there are potentially very important indirect effects.

Bankruptcies filed many states use that state’s own set of exemptions. So the federal bankruptcy court has to interpret that state’s definitions of those exemption definitions. Some of those definitions and the court’s interpretations of them can disqualify some immigrants. For example, Florida has a very generous homestead exemption, but In order to qualify for it, a debtor must be a permanent resident of the state with the intent to make the property in question his permanent residence. This residency requirement can be satisfied by a non-citizen only if he or she has gotten permanent resident status–a “green card”—as of the date of the filing of the bankruptcy. In a recent case, the immigrant was in the process of getting his permanent residency and in fact received that status three months after filing bankruptcy, but he was still deemed not to be a permanent resident at the time of his bankruptcy filing and so was denied a homestead exemption.

Discharge:

Again, the rules about what debts can be discharged and which cannot are the same regardless of citizenship. But some non-citizens have debts which were incurred in another country, leading to the question whether those debts can be discharged in their U.S. bankruptcy case.

It depends.

First, assuming that the creditor is given appropriate notice of the bankruptcy, and the debtor successfully gets a discharge of his or her debts, that creditor will no longer be able to try to collect that foreign in the U.S. 

But second, there is a good chance that the U. S. bankruptcy court’s discharge of this debt does not result in the discharge of the debt under the laws of the original country. If so, then that debt can continue to be collected according to the laws of that country, presumably against the debtor’s assets in that country, and perhaps in other countries outside the U. S. This depends on complicated international issues like treaties between the U.S. and that country, and whether they have “comity”—an agreement to respect each other’s laws—specifically in the area of bankruptcy. Otherwise, if the debtor has property outside the U. S., or intends to return to the other country, even just to visit, these issues should be investigated very closely, likely with both your U. S. bankruptcy attorney and one in the other country. In some situations, it even may be necessary to file the appropriate form of bankruptcy in the other country, assuming that exists and the debtor qualifies to do so.