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Chicago Bankruptcy Question: What is a Chapter 15 bankruptcy?

Chicago Bankruptcy Question of the Day: What is a Chapter 15 bankruptcy?  Chapter 15 bankruptcy is properly titled "Ancillary and Other Cross-Border Cases" and was created when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect in October 2005.  This bankruptcy chapter is designed to address the increasing international nature of business and provide a mechanism for dealing with insolvency issues that cross international borders.

The authority of Chapter 15 bankruptcy is, by its very nature, extremely limited.  It cannot supersede any existing treaties or agreements between the U.S. and a foreign country.  It relies on foreign courts recognizing bankruptcy proceedings in the U.S. and the cooperation of foreign representatives in making the process effective.

A Chapter 15 bankruptcy is generally commenced by the filing of a petition for recognition of a foreign proceeding.  A hearing is held to determine whether or not the foreign proceeding is valid and, if it determined to be valid, an order recognizing the foreign proceeding is entered by the court.  If the foreign proceeding is officially recognized, then the protections of the bankruptcy court become effective against property that is within the territorial jurisdiction of the United States, as do rules regarding the transfer of assets.  Collection activity must cease and no new collection actions may commence while the protection of the bankruptcy court is in effect.

Chapter 15 is generally limited to corporations conducting a significant amount of international business, although it is certainly not exclusively applicable to corporations.  This is a very difficult and complex area of law so you want to be sure that, if you are conducting extensive international business and are having severe financial difficulties, you have an experienced team of bankruptcy lawyers representing you.

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