Debt can be overwhelming. While most people don’t intend to enter into a debt that they cannot repay, life gets in the way, and things happen that are outside of our control.
For some with a very large debt, it may be tempting to escape it; some people even take extreme measures by moving to another state or country. Here we’ve broken down some of the most common questions about the collection of debts in the United States and abroad.
What happens to my debt when I move to another state?
Assuming you have been found liable for your debt and there is a valid “judgment” for it recorded in the state in which you live, the collections company will get a triple sealed authenticated copy of that judgment and mail it to a collections company in the new state. The company will file a new action called a filing for a foreign judgment. Even if you have not yet been found liable for your debt, these proceedings can occur at a later date, even after you have moved to another state.
What happens to my debt when I leave the country?
Debt remains outstanding until it is paid, and interest and penalties continue to accrue. While it is technically illegal for a creditor to sue you in a country or state in which you no longer reside, sometimes this issue rests on the language of the contract or the sentiment of the court. Most contracts and loan agreements specify in which states legal arguments and court cases must be settled.
If a lawsuit against you does go uncontested while you’re away, the collections process will continue as it would if you were stateside. Leaving the country can cause serious problems with your credit rating if you do decide to return. Creditors can begin the judgment process on your last known address (despite legality), and your debt will be waiting for you if and when you return.
If you still have assets in the country, the creditor can secure these as partial payment. You could return to a judgment against you or the repossession of your belongings. The IRS expects U.S. citizens to file tax returns and pay what is owed. If you leave the country with unpaid debts, eventually those balances will be written off and your creditor may file a 1099-C form with the IRS reporting these unpaid amounts as “income.” The IRS will expect payment of this phantom income.
Another consequence of leaving the country could be causing the burden of your debt to fall on your family or co-signer(s). In addition, a collector could sell your debt to an agency in another country, and foreign creditors can order a copy of your United States credit report.
Are contracts for debt enforceable outside of the United States?
Contracts for debt are not enforceable outside the United States. So essentially, it is true that leaving the country is a way to leave your debts behind. While foreign countries will not seek to extradite you for debt, there are other actions that may be taken.
Some debt collection agencies operate in multiple countries, expanding their reach. However, that is not typically the case. You may find that the country you’ve chosen has a reciprocal agreement when it comes to tracing debtors, like Germany, Canada and the UK. HM Revenue & Customs, the UK’s tax and customs authority, has a long reach. HM has a mutual assistance agreement with several countries to recover money owed.
While relocating may help you outrun your debt, it is not as simple as it sounds. Not only will you have to come up with the money to purchase a plane ticket, invest in housing and sustain yourself, but if you plan to stay in a foreign country for a long period of time, you will have to secure residency, which requires income. You have to prove that you have a reliable source of monthly income to meet the country’s minimum requirements.
Also, lenders are not as generous and quick to extend credit in other countries as they are in the United States. If you have become accustomed to using your credit card when money gets tight, building a new and better credit history elsewhere may prove difficult.