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Does Filing Bankruptcy Affect a Non-Citizens Immigration Status?

Usually not.  But in some limited situations the indirect consequences can be huge.

Considering what’s at stake, if you are either a legal or illegal immigrant considering filing bankruptcy, this is definitely an area where you need the advice of both a bankruptcy and an immigration attorney. It’s my job to give my clients advice, but sometimes the most important thing to tell them that they need the additional help of another professional. This is one of those situations.

When you go to meet with each attorney, here are some general principles that can guide your consultation with them:

1) Just as the bankruptcy documents don’t ask you anything about your citizenship status, your naturalization application will not directly ask anything about filing bankruptcy. Bankruptcy is a legally accepted method for dealing with your debt. In fact it may even help you avoid dealing with your financial circumstances in more desperate ways, ways which could jeaopardize your immigration prospects.

2) To become a lawful permanent resident or citizen, an immigrant must establish “good moral character.” It is conceivable, although not likely, that your bankruptcy filing could be seen as an issue of moral character. Immigration is considered on a case-by-case basis, so you need to talk with an immigration attorney thoroughly familiar with current practices.

3) If you have been convicted of one of a certain set of crimes, or if you reveal during your bankruptcy proceeding that you committed one of these crimes, these could adversely affect your immigration status. Certain crimes could even result in deportation. Examples include crimes of “moral turpitude” like using credit cards in other people’s names, writing fraudulent checks in more than one state, tax evasion, fraudulent transfers of assets, or providing false information to the federal government (for example, in bankruptcy petitions!).

4) Your citizenship application will ask if “you have ever failed to file a required federal, state or local tax return,” and whether you owe any overdue taxes. Bankruptcy can legally write off some taxes, but there may well be adverse immigration consequences for doing so. This is especially problematic if you have been working and getting paid “under the table,” and not having taxes withheld.

5) If you’re not legally in the U.S., you are definitely exposing yourself to the legal system by filing bankruptcy. False social security numbers—either on the bankruptcy documents themselves or even on prior credit applications—would likely lead to huge problems. In some parts of the country, U.S. Attorneys appear at the Meeting of Creditors to ask about these and other immigration related matters. You are under oath and may find yourself in a very sensitive and dangerous situation.

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

In my last blog 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 my next 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.

 

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