1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

What is Chapter 15 Bankruptcy?

By

Chapter 15 is one of the most unique bankruptcy chapters, although Chapter 9 is likely a close second. Chapter 15 was only recently added to the Bankruptcy Code in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act. Chapter 15 allows proceedings for a foreign debtor or other related parties to access U.S. Bankruptcy Courts.

Chapter 15 is essentially the United States' adoption of the United Nations Commission on International Trade Law ("UNCITRAL") which addresses international bankruptcy issues.

Objectives

You may wonder, what is the purpose of allowing foreign nationals access to the U.S. Bankruptcy system? The bankruptcy laws provide for the following objectives of Chapter 15:

(1) to promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;
(2) to establish greater legal certainty for trade and investment;
(3) to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;
(4) to afford protection and maximization of the value of the debtor's assets; and (5) to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment. (See 11 U.S.C. § 1501)

Nature of Proceeding

A Chapter 15 proceeding is generally not the main bankruptcy proceeding relating to the foreign individual or entity. The Chapter 15 proceeding is usually, therefore, "ancillary" or secondary. The main proceeding will usually take place on the home country of the foreigner.

Filing of the Case

A Chapter 15 case must be filed in the United States Bankruptcy Court by a foreign representative requesting the recognition of a foreign proceeding. The petition must prove that the foreign proceeding exists.

After the filing, the Bankruptcy Court will designate the foreign proceeding as either "foreign main proceeding" or "foreign non-main proceeding," with the difference being that in a non-main proceeding, the debtor does not have its main interests in that country. Upon the recognition of a foreign main proceeding, the automatic stay goes into effect in the United States to protect the assets of the foreign debtor that are within the United States.

Once the foreign representative initiates the Chapter 15 case, it can seek further relief from the bankruptcy court, including the filing of a full bankruptcy petition (such as under Chapter 7).

Jurisdiction of the Court

The U.S. Bankruptcy Court, in a Chapter 15 proceeding, is generally limited in the scope of its power to assets of the foreign entity or person that are within the United States. Therefore, the U.S. Court defers to many of the actions of the foreign court. This promotes cooperation with foreign nations and courts in not only allowing for a foreign entity to protect its rights in the United States, but to also not excessively interfere in the affairs of foreign country.

The U.S. Bankruptcy Court may also offer additional aid to a foreign representative. This is only in circumstances where the Court determines that the laws of the foreign court do not violate the laws or public policy of the United States, and that the foreign court is fair. If the U.S. Court determines that the foreign court is lacking in this regard, it can offer additional assistance to the foreign national.

LEGAL DISCLAIMER

This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article does not create an attorney-client relationship between the author of this article and the user or browser.

©2014 About.com. All rights reserved.