Bankruptcy Questions Answered

Court Says Foreign Creditor Can Ignore Automatic Stay And Continue Pursuit Of Debtor’s Assets Abroad

There is a general bankruptcy rule that bankruptcy courts have world-wide jurisdiction. This principal is relevant usually when a bankruptcy trustee want to capture the debtor’s assets located in other states and offshore. But, what is the extent of bankruptcy court’s ability to enforce other orders outside the United States? I came across an interesting court decision which considered the geographical limits of the bankruptcy automatic stay against creditors.

In this particular case, the U.S. debtor borrowed money from a creditor in Canada. The creditor sued the debtor in Canada and got a judgment in a Canadian court. The debtor then filed Chapter 7 bankruptcy in his U.S. home state. The Canadian creditor ignored the bankruptcy stay and continued to enforce the judgment against assets located in Canada. The bankruptcy trustee filed an adversary complaint against the Canadian creditor to enjoin future judgement enforcement and to recover Canadian assets seized by the creditor post-filing.

The bankruptcy court dismissed the trustee’s adversary proceeding because the court said the bankruptcy stay does not apply to the Canadian creditor and that the creditor is not subject to bankruptcy court jurisdiction. The bankruptcy court found that this creditor never established or maintained any identifiable contacts in the U.S., and therefore was not subject to the exercise of the bankruptcy court’s personal jurisdiction and not enjoined by the automatic stay. The decision suggests that foreign based creditors that do not do business in our country and have not assets here may ignore the automatic stay of a U.S. bankruptcy case. The case is: 3:08-bk