Moving abroad can be a very exciting experience, whether you are looking for a fresh start or just to try something new. There is just one thing getting in the way of that – your debt. What happens to your debt when you move out of the country? That depends on many factors. The type of debt, any assets you have, and whether or not you are currently in default and if the creditor is trying to collect from you at the time of your move or not.
In this article I will talk about some of the possibilities of what could happen if you chose to move out of the United States without paying your debt, what to expect and how you can navigate your financial situation when contemplating moving abroad.
What Type of Debt Do You Have?
The outcomes of your debt mainly depends on what type of debt you have and the amount. Lets walk through the different types of debt that you may have right now.
A mortgage is a loan that is usually secured by Real Property. Whether that is a home, land or some form of structure. Since they are secured by something tangible, if the re-payment agreement is not satisfied the lending party may seize the property and sell it to recoup the original principal balance plus interest and fees. This is called a foreclosure. In some instances upon a foreclosure the original lender may not be able to recoup all of the money that is owed to them, so even after the sale of the property, you could potentially still have a balance owed. This is called negative equity.
Auto Loans, motorcycle loans, RV loans are all in the same category. They are similar to Mortgages as they are secured by something tangible. Upon successfully paying off the loan the title gets returned to you and there is no longer a lien on the item. If you have an automobile repossessed you can still owe more after the lender sales the item off. This is much more common than foreclosures given that typically automobiles depreciate and real estate appreciates in value.
Consumer Debt (Credit Cards, Medical, Personal Loans)
Debts such as credit cards, medical bills and person loans are all unsecured. Meaning they are not tied to an asset. Debts like these, since they are not tied to an asset, typically go to collections or charge off status if you default on them.
If you owe taxes to the Internal Revenue Service (IRS) or if you keep your United States Citizenship, you will still owe the taxes regardless on whether or not you live in the US. Some exceptions do apply. The IRS will allow you to claim certain foregin earned income exclusions and/or foreign income tax credits.
What Will Happen to the Debt?
There can be different consequences depending on the type of debt you may have. If you abruptly stop paying all of your unsecured debts chances are they will be charged off and sent to collections. In some scenarios, the original creditor may directly take you to court after a few months in the charge off status – rather than selling the debt to a debt collection agency. However, once a debt collection agency picks up the old debt, they can still sue you.
If you have a mortgage or other secured debt, the item that it is secured with will most likely be repossessed and sold to pay off your balance. In some instances if you are upside down (meaning you owe more than what it is worth) you may have a balance due that can be sent to collections and could potentially open you up to a lawsuit.
Lawsuits, judgements, etc are based on the type of debt.
It is important to note that if you have an auto loan or another type of secured vehicle loan, it is highly unlikely that you will be able to take it to another country. Many lenders will not allow you to leave the country with your vehicle, unless you have written permission from them to do so. Most shipping companies will not ship your car unless you have clear title.
What Will Happen To You If You Return to the US?
If you chose to return to the United States after living abroad, and you abandon your debts you could face some not so fun consequences upon your return.
If you are sued in court by a debt collector and you do not respond/appear the court will most likely enter a default judgement. Once a creditor has a default judgement they may be able to garnish your wages, levy your bank account or seize/put a lien on any property you still have in the United States. Each state has its own guidelines and length of time that garnishments can stay active for. In many cases a garnishment can be renewed until it is paid in full, it is important to keep in mind that interest may continue to accrue on any unpaid balance as well.
Statute of Limitations
Statute of limitations is the amount of time that a person or company can take legal action against someone. In this case, the statute of limitations on debt varies from state to state. Once the statute of limitations has run out, the debt can no longer be collected on. Different types of debt have different statute of limitation time limits, in addition to statute of limitations being varying from state to state.
For federal income taxes, the IRS has a standard 10 year statute of limitations period from the collection of past due tax debt. This 10 year period starts on the date of assessment, which in most cases is Tax Day, on or around April 15th.
Resolving The Debt
Depending on your creditors and the amount you owe them and what country you move to, they still may be able to pursue collection efforts over seas. Generally speaking, many creditors may not think it is worth the expense of trying to collect, but it is not impossible. It may be in your best interest to deal with the debt before you decide to move.
Bankruptcy can be a rather popular option when people are faced with a judgement. The main reason is the moment that you file for bankruptcy an automatic stay goes into effect. An automatic stay prohibits the collection of any and all debts, and that includes judgements.
Chapter 7 Bankruptcy is often known as liquidation bankruptcy. All eligible debts are typically discharged in 90-120 days from your filing date. In this type of bankruptcy, you must take and pass the means test. During a chapter 7 bankruptcy case, the trustee will take a look at all your assets and anything that is worth more than the state or federal exemption could be sold and the funds above the exemption would be used to repay creditors and the remaining would be returned to you. 90-120 days after you file your case will be discharged and you will no longer be legally responsible for most debts. Certain debts like student loans, child support and alimony cannot be discharged in chapter 7 bankruptcy.
Chapter 13 Bankruptcy is sometimes referred to as the wage earners bankruptcy. This is for people who do not pass the means test for their state, or have assets that are above the exemption limits, and they do not want to part with them. In this type of bankruptcy, your debts get restructured and a portion of the debts are repaid over 36-60 months. At the end of the chapter 13 plan, if there are any debts left, they are discharged.
Debt Settlement is where you work with a reputable debt settlement company or attorney and negotiate the amount owed down. This is either repaid in one lump sum or monthly installments. It is much easier to settle with the creditor before they are awarded a judgment, but it is still possible to obtain success after, though it may be more difficult.
If you are thinking of moving abroad and have a lot of debt here in the United States that you would like to handle before you move, or if you have already moved and are contemplating moving back but are unsure how to proceed, you may find our Debt Relief Comparison Calculator particularly helpful. This calculator will walk you through all the options available to you, explain the pros and cons of each option, as well as give you the average cost in your area for popular solutions.