Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
Dear To Her Credit,
I owe American Express $40,000, and my mortgage is in foreclosure for $166,000. I cannot file for Chapter 7 bankruptcy because I live in the Philippines, but my condo is in Norwalk, Connecticut.
What happens if I just ignore all my debts and stop paying American Express? – Jill
It’s tempting to just ignore debts when they are on the other side of the world, especially if you don’t intend to ever return to the U.S. Many people do just that, of course, and get away with it.
If you ignore your U.S. debts, you’ll surely lose the condo, your creditors will try to file suit against you, and your credit score will sink as low as it can go.
However, there’s not much they can do to you when you are in the Philippines. Your credit score doesn’t follow you there, and it would be cost-prohibitive for credit card companies to chase you down there to try to collect.
On the other hand, “just ignoring” debts doesn’t make them go away. You know the debts are there, for one thing. Most people want to pay their debts or at least resolve them, and it’s stressful to know you have unpaid debts – even when they are far, far away.
It is true that you must be “domiciled” in the place where you want to file bankruptcy. Usually – but not always – that means you live there. However, the courts can find that you are domiciled where you have your assets, such as where you have bank accounts and your condo.
If your only two options are ignoring your debts or filing for U.S. bankruptcy, the bankruptcy may be the better choice. After Chapter 7 bankruptcy, your dischargeable debts are cleared. To see exactly what your bankruptcy options are, contact a bankruptcy lawyer in the U.S. location where you are most likely to be considered domiciled.
Another option may be to negotiate with your creditors, if you have any money to offer them. Instead of spending money on bankruptcy fees and lawyers, you could use that money to strike a deal with the bank. You don’t need someone to do this for you. You can do it yourself as well as anyone can.
If possible, you should avoid having your condo foreclosure go through. Connecticut, like most states, allows lenders to sue delinquent borrowers when the amount they receive from the sale of real estate is less than the amount the borrower owed.
For example, you owe $166,000. If the bank sells the condo at an auction for $136,000 after expenses, the bank could then sue you for the difference, or $30,000 ($166,000 minus 136,000). You’re on the other side of the world, so you may not care. However, should you decide to come back, that $30,000 deficiency, plus fees and interest, could be here waiting for you.
You may be able to avoid condo foreclosure by selling it, perhaps as a short sale, or by giving the bank a deed in lieu of foreclosure, which is preferable to letting the foreclosure process continue. The deed in lieu of foreclosure must expressly state that this transaction is in full satisfaction of the debt to prevent the bank from suing you for any deficiency.
I think it’s important for you to keep your options open for your future. It’s easy for people to say they want to live in the Philippines, or anyplace else in the world, forever. But life circumstances change. People have children and perhaps want them to go to school in the U.S., or they decide their parents need them closer by as they age.
Many people like to divide their time between two countries every year.
You should be able to decide where you want to live based on the needs and wants of you and your family – not whether you have left a pile of debt behind that you hope to never see again.
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