What is Chapter 15 in bankruptcy?

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Chapter 15 bankruptcy is a US law that helps foreign debtors with domestic debt. It streamlines the process for US lenders’ rights in foreign courts, foreign lenders’ rights in US courts, and debtors’ rights in US courts. Debtors file for bankruptcy in their home country first, and filing in the US is considered a secondary filing. This type of bankruptcy allows for two-way access to foreign and US courts to determine the best way to apportion any payment. It is complex to file and requires legal representation.

Chapter 15 bankruptcy is a chapter to US bankruptcy law added in 2005 that helps streamline the process when businesses or debtors outside the US have domestic debt. In an increasingly global financial world it is entirely possible for foreign debtors to owe money to various lending institutions in the United States, as well as owing money in another country. When a debtor is unable to repay debts, this form of bankruptcy helps address the issue of U.S. lenders’ rights in foreign courts, foreign lenders’ rights in U.S. courts, and debtors’ rights in U.S. courts to get relief from debts that cannot be repaid.

A person filing for Chapter 15 will file for bankruptcy in their home country first, and filing in the United States is considered a secondary or ancillary filing. Chapter 15 is not the only option for foreign debtors. A significant amount of debt might make it more reasonable to file Chapter 7 or 11 instead. This choice would likely only occur if the principal debt is to lenders in the United States. When the majority of the debt owed is in a person’s home country, borrowers would have to file Chapter 15 to essentially notify US creditors of bankruptcy status.

There are several things that occur as a result of filing for Chapter 15 bankruptcy. One or more representatives of U.S. debtors may participate in the main bankruptcy proceedings before a foreign court. Depending on how debt repayment is structured in court, in the event of a debt repayment, these representatives may be able to obtain repayment for the debt. In any event, any claim by a U.S. lender for a right to repay would be considered with the claims of all foreign lenders.

This access to foreign court works both ways with Chapter 15. Foreign lenders or their representatives get the right to file their cases in US courts. A judge creating any type of repayment plan would have to weigh these lenders’ claims against those of US creditors. This two-way access helps foreign and US courts determine the best way to apportion any payment.

In addition to making it easier for courts in the United States or elsewhere to work together to determine how to resolve claims, Chapter 15 gives the borrower the opportunity to claim and cancel all debts at the same time. Otherwise, foreign bankruptcy may not apply to U.S. debts, but by filing for bankruptcy under this chapter, a debtor can file for immediate insolvency in multiple venues. This gives the person or business the ability to get instant relief at every location where money is owed.

This type of bankruptcy is complex to file. Individuals or business entities are usually advised to have legal representation in the courts and may or may not need to travel to the United States to appear in court. Anyone considering this form of bankruptcy should remember that you must first file for bankruptcy in your home country, where your major debts are owed.




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