In my last blog I explained that non-citizens—legal or not—are allowed to file for bankruptcy. Essentially all they need is appropriate identification. But that raises a couple of questions:

1) Will they receive all the benefits that a citizen would receive?  and

2) Will filing for bankruptcy hurt their efforts to become a citizen, or increase an illegal immigrant’s risk of being deported?

I’ll handle the first question now, and the second one in my next blog.

The two main benefits of bankruptcy are:

1. Protecting your assets from the trustee (and thus from the creditors) by using your “exemptions.”

2. Getting your debts discharged.

Exemptions:

The exemption rules don’t change because a person isn’t a citizen, but there could be some very important indirect effects.

Most cases use the exemptions granted by the state where the case is filed.  But those exemptions may not be available to a non-citizen.  For example, Florida has a very generous homestead exemption, but in order to qualify for it, you must be a permanent resident with the intent to make the home your permanent residence. In order to satisfy this requirement, a non-citizen must be a permanent resident.  In other words, they’ll have to have a “green card” on the day their bankruptcy case is filed. In a recent case, on the day it was filed, the immigrant was still in the process of getting his permanent residency.  He ultimately received that status three months after filing bankruptcy, but the Court ruled that he was not entitled to the exemption because he was not a permanent resident at the time his case was filed.

Discharge:

The rules about what debts can be discharged are the same regardless of citizenship. But some non-citizens have debts which were incurred in another country, leading to the question of whether those debts can be discharged in their U.S. case.

Like most things in the law, it depends.  Maybe, maybe not.

First, as long as the creditor was mailed the notice of the bankruptcy case, and the debtor gets a discharge of his debts, that creditor will no longer be able to try to collect his debt in the U.S.

But unfortunately, there is a good chance that the debt will not be considered discharged in the original country.  So that debt can continue to be collected under the laws of that country against the debtor’s assets in that country, and maybe even in other countries outside of the U. S.  This will depend 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.

So, 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 with both the U. S. attorney and one in the other country. In some situations, it even may be necessary to file another bankruptcy case in the other country, assuming such a legal procedure exists and the debtor qualifies to file there.