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In Bankruptcy, what is Chapter 15?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 09 November 2016
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Chapter 15 bankruptcy is a chapter to US bankruptcy law added in 2005, which helps to streamline the process when businesses or debtors outside the US have debts inside it. In an increasingly global financial world it’s quite possible for foreign debtors to owe money to various lending institutions in the US, in addition to owing money in another country. When a debtor cannot repay debts, this form of bankruptcy helps to address the issue of rights of US lenders in foreign courts, rights of foreign lenders in US courts, and rights of debtors in US courts to obtain some relief from debts that can’t be repaid.

A person filing Chapter 15 would file bankruptcy in his or her own country first, and the filing in the US is considered a secondary or ancillary filing. Chapter 15 is not the only option for foreign debtors. A significant amount of debt could make it more reasonable to file Chapter 7 or 11 instead. This choice would probably only occur if principal debt is to lenders within the US. When most of the debt owed is in a person’s home country, borrowers would file Chapter 15 to essentially notify US creditors of bankruptcy status.

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There are several things that occur as result of filing Chapter 15 bankruptcy. One or more representatives of US debtors can participate in the principal bankruptcy proceedings in a foreign court. Depending on how debt repayment in the court is structured, if there is debt repayment, these representatives might be able to obtain some repayment for debt. In any case, any US lender’s claim to repayment rights would be considered with the claims of all foreign lenders.

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

In addition to making it easier for courts in the US or elsewhere to work together to determine how to resolve claims, Chapter 15 gives the borrower an opportunity to claim and clear all debts at the same time. Foreign bankruptcy might not apply to US debts otherwise, but by filing bankruptcy under this chapter, a debtor can at once declare insolvency in multiple locations. This gives the person or company a chance at gaining immediate relief in every place where money is owed.

This type of bankruptcy is complex to file. It’s usually advised people or corporate entities have legal representation in the courts, and they may or may not need to travel to the US to make a court appearance. Anyone considering this form of bankruptcy should recall that it is necessary to first file bankruptcy in the home country, where principal debts are owed.

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