Can Your Debt Follow You if You Move to Another Country?

Can You Avoid Debt by Moving Abroad?

There’s no law saying you can’t move to another country if you have debt—even if it’s in collections. But if you’ve taken on debt in the U.S., you’re contractually obligated to pay it, regardless of where you choose to live.

Living abroad can make it more difficult for creditors to find you and collect on your debt. But if you avoid them long enough, you could be dealing with a lawsuit, tax issues and more. And if you return to the U.S. at some point in the future, your financing options will be severely limited.

Why Moving to Avoid Debt Is a Bad Idea

While it may be tempting, there are several reasons to think twice about moving out of the country as a way to avoid paying your debts:

• Late fees and other costs add up. If you miss payments on your loans and credit cards, your creditors will tack late fees and interest charges onto the amount you owe, causing your debt to balloon over time. Depending on the type of debt, you may also be charged collection fees, which can be incredibly costly.
• Your credit will take a significant hit. Your payment history is the most important factor of your FICO Score, so defaulting on your debts can cause significant damage to your credit profile. If you decide to return to the U.S., it could make it very difficult to get approved for credit for several years.
• Your creditors may sue you. Even if they can’t reach you, your creditors or debt collectors can file a lawsuit to collect on what you owe. If you’re not around to defend yourself, the court may enter a summary judgment and may allow the creditor or collection agency to garnish your U.S.-based assets or even your wages if you still work for a U.S.-based employer. What’s more, judgments can be renewed, so if you try to outlast one and return to the states in the future, your assets may still be vulnerable.
• You may end up with a tax bill. If some or all of your debt is ultimately forgiven, you may have to pay taxes on the amount that was discharged.

Alternatives to Moving Abroad to Get Out of Debt

Depending on your situation, there are some options to consider that can help you tackle your debt without the repercussions of avoiding it.

• Debt consolidation: If you have good credit and high-interest debt, you may qualify for a low interest rate on a personal loan or an introductory 0% APR balance transfer credit card. These options can help you save money on interest and potentially make your payments more affordable.
• Debt repayment strategy: If you can make your minimum payments and a little extra, an accelerated debt repayment approach like the debt snowball or avalanche method may help you pay off your debt faster and save money on interest along the way.
• Credit counseling: A credit counselor can provide free guidance for your situation and also set you up with a debt management plan. With this option, the counseling agency can negotiate lower interest rates and payments on your unsecured debts and help manage your monthly payments over a three- to five-year period for modest upfront and monthly fees.
• Debt settlement: If you’re behind on your debts, you may be able to negotiate a settlement with your lender to pay less than what you owe. Debt settlement companies and law firms can help, but watch out for costly fees and potential scams as you research your options. Debt settlement can cause serious damage to your credit scores.
• Bankruptcy: Filing for bankruptcy is generally a last resort when you’re behind on debt and have no other options. Depending on your situation, you may qualify for Chapter 7 bankruptcy, which can wipe out your debts after liquidating some of your assets. Alternatively, you may opt for Chapter 13 bankruptcy, which restructures your debt to be more affordable.

Protecting Your Credit Can Improve Your Options in the Future

As you research ways to manage your debt, it’s important to consider steps to protect your credit from further damage. Even if you’ve already missed payments or are considering drastic options like debt settlement or bankruptcy, moving overseas to avoid your debt can cause far worse consequences in the long run.

Monitor your credit regularly to keep track of your FICO Score and credit report, and make sure the information you see is accurate. If you find an inaccuracy, you have the right to file a dispute with the credit reporting agencies.

Once you’ve paid off your debt, look for opportunities to rebuild your credit history to make it easier to get affordable financing when you need it in the future.