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The Effects of Filing Bankruptcy if You Are Not a U.S. Citizen

Feb. 21, 2014

Can foreign debts be written off in bankruptcy, and can filing bankruptcy effect your efforts at citizenship or at avoiding deportation?

Our last blog post asked if bankruptcy is an option if you are not a U.S. citizen. The answer is yes, you may file bankruptcy if you are in the U.S. no matter what your citizenship status may be, as long as you reside or have made your home here, or operate a business or own any property or possessions located here.

But just because you CAN file bankruptcy does not necessarily mean that you will be treated exactly like a citizen when you do. So here we address three questions about the potential special effects of filing bankruptcy for a non-citizen: 1) Would your bankruptcy case discharge (legally write off) debts from another country? 2) Would filing bankruptcy affect a legal non-citizen’s efforts to become a citizen? 3) Would filing bankruptcy increase an illegal immigrant’s risk of deportation?

The Discharge of Non-U.S. Debts

The laws about what debts that you can discharge (legally write off) does not change with the citizenship status. But if you are a non-citizen you more likely have debts which were incurred in another country, leading to the question whether those debts can be discharged in your bankruptcy case in the U.S.

The answer has two parts.

First, as to a foreign creditor’s collection efforts within the United States, IF the creditor is given appropriate notice of the bankruptcy then the discharge entered in a U.S. bankruptcy court will be effective against the creditor within this country.

Second, as to that creditor’s collection efforts outside the U.S., there is a high likelihood that the bankruptcy court’s discharge of the debt would NOT be treated as a discharge of the debt under the laws of the country where the debt originated. If so, then the foreign creditor can collect that debt according to the laws of that country, presumably against your assets in that country, and perhaps in other countries outside the U.S.

Whether or not the U.S. bankruptcy court’s discharge would be effective in the country where the debt originated depends on treaties between the U.S. and that country, and whether the two countries have “comity”—an agreement to respect each other’s laws—specifically in the area of bankruptcy. So if you have property outside the U. S., or intend to return to the other country, do NOT assume that your bankruptcy applies internationally. You must look into this potentially complicated issue very closely, likely needing to consult not only with your U. S. bankruptcy attorney but likely one in the other country as well. It may even be necessary to file the other country’s version of bankruptcy for full protection, assuming such a procedure exists and you are qualified to do so.

Bankruptcy’s Potential Effect on A Non-Citizen’s Immigration Status

Usually filing bankruptcy has no effect on your effort to become a citizen or on your immigration status. Bankruptcy is a legal method for dealing with your debts, one which is generally available to anyone residing here.

But in some limited situations there can be very serious consequences.

This is a complicated area but here are some general principles that you should discuss with both your bankruptcy and immigration lawyers:

  1. Your bankruptcy documents that you sign and are filed at bankruptcy court don’t ask you anything about your citizenship status. Similarly your naturalization application will not directly ask whether you have filed bankruptcy. Not only is bankruptcy a legally way to address your debts, it may actually help you avoid more desperate ways of doing so, ways which could jeopardize your residency and/or citizenship prospects.

  2. To become a lawful permanent resident or citizen, you must establish your “good moral character.” It is not likely but possible that your bankruptcy filing could be seen as an issue of moral character. Immigration decisions are made on a case-by-case basis, with a lot of discretion given to the deciding officers. So you must talk with an immigration lawyer who is very familiar with the current local practices.

  3. If you have been convicted of one of a specific set of crimes, or if during your bankruptcy proceeding you disclose that you committed one of these crimes, this could adversely affect your residency or citizenship efforts. Certain crimes could even result in deportation, including mere financial crimes. 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 (such as on bankruptcy documents).

  4. Your citizenship application will ask if “you have ever failed to file a required federal, state or local tax return,” and also whether you owe any overdue taxes. Bankruptcy can legally write off some income taxes, but there could be adverse immigration consequences for doing so. This can especially be a problem if you have been working and getting paid without having taxes withheld.

  5. If you’re not legally in the U.S., you are exposing yourself to the broader legal system by filing bankruptcy, with consequences that are difficult to predict. You must especially avoid the use of fake Social Security numbers—either on the bankruptcy documents themselves or even on prior credit applications. U.S. Attorneys or their representatives could 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 situation.

Whether you are a legal or illegal immigrant considering filing bankruptcy, because of what’s at stake you need the advice of both a bankruptcy lawyer and an immigration one to sort through these issues.