Like HowStuffWorks on Facebook!

How do bankruptcies affect foreign residents?


Foreign residents can file for bankruptcy if they have a Social Security number or individual taxpayer identification number.
Foreign residents can file for bankruptcy if they have a Social Security number or individual taxpayer identification number.
Robert Bremec/Getty Images

The decision to file for bankruptcy is fraught with long-term consequences when it comes to your credit. But if you are a foreign resident of the United States, bankruptcy can pose a threat to more than your financial bottom line: It could affect your ability to stay long term.

People who are legal residents -- also known as foreign residents or lawful permanent residents -- are afforded the same protections under federal bankruptcy code as U.S. citizens. Legal residents are eligible to file bankruptcy and receive relief from debt as long as they meet at least one of these criteria:

  • They live in the United States
  • They own a home, business or other property in the United States

Before filing for bankruptcy as a foreign resident, however, there are some things to consider. If you are in the process of applying to become a U.S. citizen, filing for bankruptcy could complicate matters. It doesn't necessarily mean you'll run into trouble with your approval for citizenship, but it could. It's a good idea to consult with an immigration attorney, as well as a bankruptcy attorney, before deciding to file for bankruptcy protection [source: Cornell University Law School].

If you are a foreign resident, you can file for bankruptcy as long as you have a Social Security number or individual taxpayer identification number (ITIN or TIN) issued by the IRS. There are legal foreign residents who work in the United States most -- or all -- of the calendar year and who file taxes using an IRS-provided TIN.

Keep in mind, however, that the Social Security number or TIN you use to file bankruptcy will need to have been obtained legally. A foreign resident may have obtained a Social Security number by legally entering on a visa, like those meant for a tourist or student. It's also important to note that the bankruptcy filing will be public record, so if you are in the country illegally, it may not be in your best interest.

Although residents living in the United States illegally may file for bankruptcy protection, doing so will open them up to charges that could range from illegal immigration issues to tax evasion. In addition, if a legal foreign resident or illegal resident has a previous felony or criminal record, he or she may be deported [source: O'Neill].

In addition to personal bankruptcies of foreign residents, U.S. bankruptcy code makes provisions for foreign companies to file for Chapter 11 protection. To be eligible, a foreign company must be incorporated in the United States or have operations or assets there.

Once this is established, the company can file for Chapter 11, a form of bankruptcy that is particularly attractive in comparison to bankruptcies in other countries. In the United States, companies that file for Chapter 11 are protected from creditors who may want to seize property or sue over debt. It also allows companies to restructure and continue their operations [source: Palank].


More to Explore