THE PERILS OF BANKRUPTCY FILINGS BY UNDOCUMENTED PERSONS
By Richard J. Parker: Shareholder in Parker, Butte, & Lane, P.C. (reprinted with permission of the author, December, 2017)
Immigration status is a complex legal issue for anyone not born in the USA. While some people born overseas are still U.S. citizens at birth, there are some hoops to jump through that do not exist for those born in the U.S. For example, even if Barack Obama had actually been born in Kenya, he would still be a U.S. Citizen, just as is John McCain who is a U.S. citizen despite being born in the Panama Canal Zone. Likewise for Ted Cruz who was born in Canada.
Immigration and Bankruptcy – the issues are: Can a non-citizen or any other undocumented person file for bankruptcy; the second issue is should they?
The first issue is easy.
Under the definitions section at 11 USC 109(a), a person without proper documentation of citizenship or legal status can in fact file bankruptcy if they meet the statutory criteria. The bankruptcy Social Security Official Form 121 even provides for the possibility that a debtor would not have a social security number or tax identification number. Although the concept sometimes puzzles court clerks, judges or United States Trustees in some parts of the country, the case law is clear. In addition, Official Form 121 certainly leaves that “no numbers” option open. Form 101 – the Petition page which – does not have quite the specificity as it asks for “only the last 4 digits of YOUR Social Security Number or federal Individual Taxpayer Identification Number (ITIN)” (emphasis added).
The right of a person to file without either number was upheld by in Florida in 2001. In re: Merlo, 265 BR 502.
After the debtor failed to list a social security number, the chapter 13 Trustee filed a motion to revoke confirmation and dismiss the case or in the alternative require disclosure of a number. In this case the debtor was a 70+ year old citizen of Argentina who was neither a U.S. Citizen nor a Legal Permanent resident (LPR). What his status actually was not discussed. the court held that the fact that he did not have and could not get a social security number did not prevent him from filing bankruptcy.
However, attention should be given to 18 U.S.C. 152 with regard to false oaths. See also FRBP 1005, FRBP 2002 (n), and 1 I U.S.C. 342(c). And remember that the right of the debtor to assert the Fifth Amendment in bankruptcy proceedings is limited.
The second issue is whether such a person should file a bankruptcy.
Given the current political climate, non-citizens are under increased scrutiny in many aspects of their lives. In doing a triage of a person without legal status seeking to file a bankruptcy, the attorney should consider 5 major factors:
- Has the person used a social security number not issued to him or her by the government?
- Has that number been used to incur credit obligations?
- Does the person have ANY prior contacts with either immigration or law enforcement?
- Are there any reasonable alternatives to filing bankruptcy; and
- Has the person been adequately informed of the risks of the very public act of filing bankruptcy?
If the person has USED any social security number or tax identification number, it appears that this information must be disclosed on Official Form 101, even if it is not necessarily appropriate or required to put that number on the Petition itself. As an aside, many ITIN’s are set to expire in 2017 and 2018 if not renewed.
If the number has been used, that fact MIGHT lead to a charge of ID theft.
Perhaps one of the most notorious cases in this area is In re Perez, 374 BR 445, (Bankr., D. Colo., 2007) and 415 BR 445 (Bankr. D. Colo. 2009, after remand from the Colorado U.S. District Court). After a very complicated procedural history, the debtor did in fact receive a discharge in 2009 in his case filed in 2005. It is unclear what other non-bankruptcy issues the debtor had to deal with, though the bankruptcy court did mention identity fraud since the social security number used actually belonged to another person in California. While the cases are too complex to relate here, they do make for interesting reading.
The situation has been muddied more than a bit by the U.S. Supreme Court.
In 2009 the Supreme Court (unanimously) held that a conviction of aggravated identity theft could not be upheld as the government was not able to prove that the defendant “knowingly” used a means of identification of another person. Again, this is a fascinating read at 556 U.S. 646, 129 S.Ct., 173, L.Ed. 853, but beyond the scope of this discussion.
This case was followed by the Colorado Supreme Court in finding that a person buying a car with a social security number belonging to another person, but using his own name, could not be found guilty of “criminal impersonation.” In Felix Montes-Rodriguez v The People of the State of Colorado. (No 09SC322, 2010), the conviction of criminal impersonation was reversed. The decision included such interesting asides such as that a social security number is not a legal requirement for obtaining a loan, even though they are required by banks. The dissent did indicate that such conduct was now proscribed by a newer statute related to identity theft. There was of course a spirited dissent.
What if an invented or “borrowed” or otherwise invalid social security number has been used for credit purposes?
If an invented or “borrowed” or otherwise invalid social security number has been used for credit purposes, it is certainly possible that an affected creditor could file an adversary proceeding alleging misrepresentation in the credit application. They would of course have to prove all of the elements, including reliance. However, defense of such a case would greatly increase the cost of the case and further exposure of the debtor/defendant to official scrutiny.
If the undocumented person has had any prior contact with immigration or law enforcement, officials may be watching the bankruptcy filings as well as any civil or criminal actions. Immigration lawyers in Oregon and elsewhere have reported their clients being picked up in or just outside state courts and municipal courts and immigration lawyers in some parts of the country have reported Immigration and Customs Enforcement (ICE) officers appearing at 341(a) meetings to detain debtors. While the circumstances are unclear there has been a report of a DACA individual (Deferred Action for Child Arrival) arrested at a creditor’s meeting in Houston this summer.
Before making the decision to file bankruptcy, the prospective debtor needs to be informed of the risks of making use of the bankruptcy option.
This should include at least one meeting with an immigration attorney to discuss the risks in their local area and a signed informed disclosure. Enforcement priorities of ICE differ from state to state and even by District offices. Knowledge of local culture and current practice is essential.
The foregoing does not mean that a person without a Social Security number or ITIN should never consider bankruptcy. In addition to the persons without any documentation, there are many people who are in the country who are present with permission, but do not have such numbers. For example, a person who is here on a short term business or visitor’s visa and is involved in an uninsured car accident. There is no reason for them not to file bankruptcy if it would be beneficial to them.
REPERCUSSIONS OF FILING BANKRUPTCY
If a person is a Legal Permanent Resident (LPR) or has other permission to be present such as a work visa, filing of a bankruptcy is not a problem. Filing of a bankruptcy petition will not prevent the later maintenance or acquisition of either LPR status or US Citizenship. At one time in the past there was talk of making the filing of a bankruptcy a “sign of moral turpitude.” However, that “improvement” was not enacted. All that is required as far as the finances of an individual applicant is that they have filed all of their federal tax returns and that no federal tax is unpaid. Even if there is tax debt owed, the problem can be fixed by proving to Immigration that you have a written payment plan in place – usually that would be an installment agreement.
Another area in which personal finance seeps into the immigration world is if a person is acting as a sponsor of a non-citizen.
A sponsor is required to submit a 1-864 form which promises to support the arriving alien in order to avoid that person from becoming “a public charge.” The obligation can continue for a long as 10 years.
Some states have made use of this submission in dissolution cases. The signing of the Affidavit of Support MIGHT lead to a non-dischargeable domestic support obligation of a greater duration than might ordinarily be ordered. Before signing an Affidavit of Support for an arriving alien, the sponsor should obtain independent legal advice.
Only a few bankruptcy cases have been found which cite this immigration Affidavit of Support. in one such case. an Oklahoma state court had entered a Decree of Dissolution with no further spousal support. The ex-wife who had obtained permanent resident status via an T-864 filed by her husband, brought suit in the U.S. District Court for Specific Performance of the Affidavit of Support. After the court refused to dismiss her action, the ex-husband filed a chapter 7 bankruptcy. The ex-wife then filed an adversary proceeding alleging a domestic support obligation under the Code. After having the matter under advisement for 2 months, the bankruptcy court dismissed based on the “Rooker-Feldman” doctrine.
The First Circuit SAP reviewed this decision in Schwartz v Schwartz, 409 BR 204 (2008), ultimately holding that both the “Rooker-Feldman Doctrine and res judicata precluded the bankruptcy court from consideration of the Decree of Dissolution entered in the state court.
While it seems likely that most other bankruptcy courts would also decline jurisdiction, it is an added complication.
There have been many state court decisions which relied upon the 1-864 Affidavit of Support in fixing a spousal support obligation at 10 years. See, inter alia, Davis v United States, 499 F3d. 590 (6th Cir. 2007) in which the state court was ordered on remand after appeal to specifically enforce the Affidavit of Support, thus changing the duration of support from 8 years to 10 years.
There is case law and practice in some states (Florida among them) which while allowing filing by non-citizens holds that exemptions are not available to such filers since they are not “residents.” However, a debtor should be able to use federal exemptions if denied the use of state exemptions. (Arizona exemptions)
A bankruptcy attorney will frequently see a prospective client whose major debt is an uninsured auto accident which has led to a license suspension. That is generally not an issue for a citizen and a bankruptcy discharge will require a state to return driving privileges to such a person. However in recent years it has become virtually impossible for an undocumented person to obtain an Oregon driver’s license or obtain reinstatement of a suspended license. See ORS 807.062 for requirements to obtain a driver’s license. Some non-citizens avoid this problem by obtaining an international driving permit which is good for 1 year unless you become a “resident.” A “resident” must obtain a driver’s license within 30 days of residency. There is also a problem that many people encounter when seeking to obtain a commercial driver’s license.
While many people are legally present, although not legal permanent residents, many states regulations deny commercial driver’s licenses to anyone who is not a U.S. Citizen or LPR. This is based upon a Department of Transportation regulation which many immigration attorneys consider to have been improperly promulgated.
THE ROLE OF THE UNITED STATES TRUSTEE
While the staff attorneys of a US Trustee office may not go looking for undocumented aliens on the docket, they are an arm of the Department of Justice and if a referral is received from a panel trustee, a disgruntled creditor or ex-spouse, they are obligated to investigate and possibly make a referral to the US Attorney. While the US Trustee is under a duty to investigate such matters, it appears that there is not as strong an imperative as there is in preventing the bankruptcy system from being used by people in the marijuana industry.
That being said, there have been reports that in some districts it is routine for the US
Trustee to advise ICE of any filings by persons with ITIN ‘s. Also, while the Bankruptcy Code does not seem to require government issued photo ID, it is US Trustee policy.
While there are some areas of law (workers compensation, wage and hour laws and civil rights among them) in which the federal government will essentially look the other way when immigration status is raised as a shield, that ignoring of the status is done not for the benefit of the individual, but for the good of the system and society. Such an incentive to ignore immigration status is not present when a bankruptcy is filed for personal benefit without an aspect of the public good.
In general, the attorney for the bankruptcy attorney should err on the side of caution and seek other solutions to the financial problems being suffered by a prospective debtor who may be subject to adverse immigration consequences.
Richard J. Parker: Shareholder in Parker, Butte, & Lane, P.C., Portland. OR; B.A. Reed College (1975) ;J.D., Golden Gate University School of Law (1978); member of the Washington State Bar since 1978 and the Oregon State since 1980; practices focus on bankruptcy, student loans, collections and immigration law; past Chair, Consumer Bankruptcy Sub-committee of the OSB Debtor-Creditor Section (1998-1999); editorial board of the OSB Debtor–Creditor Section Newsletter (2003-president); Co-chair of the Pro Bono Bankruptcy Clinic Sub-Committee 2012-present): Member of the OSB Debtor Creditor Section Executive Board, (2013- present): past Section Secretary and current Treasurer.
MUSINGS BY DIANE:
No matter what your opinion is about people from other countries coming to the United States, it is important that everyone understand the importance of getting good advice about the law, medicine or raising children (to name a few). Asking for help is a good beginning, but knowing who or where to ask that that help is the most important. Get referrals from your friends and from good review sites – AVVO, Yelp, Google or LinkedIn.