Best to clean up debt in your home country

Leaving unsettled debt behind could come back to haunt you

To Her Credit columnist Sally Herigstad
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, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I need help fast. I am a U.S. citizen, but a Canadian permanent resident (finalized March 2010). I moved to Canada one year ago when I married a Canadian citizen. I have a house in Maine that's been vacant one year, and I am not late on any payments, though I soon will be. I've been trying to sell it for almost two years, but I've gotten no response. I have both a mortgage and a home equity loan on the property. If the bank forecloses on my house, I know that, in Maine, they can do a deficiency judgment on the difference between market value and what I owe. I figure the judgment will be at least $20,000.

I have no plans to move back to the States. As of now, my credit is perfect there. I just can't sell my property and can't keep paying two mortgages. I've also tried to rent the house, but the rent won't cover the payments.

Can they garnish my Canadian paycheck? Will my bad credit from this follow me to Canada? And if I do ever go back to the United States, what will I face? I hope you can answer soon because I have about one month before I'm behind on payments. -- Cassandra

Answer for the expert

Dear Cassandra,
Moving to Canada does not get you out of paying U.S. debts. The banks holding the first and second mortgages in Maine can pursue a deficiency judgment against you, and those judgments will find you in Canada. You could indeed find your paycheck garnished or other actions taken against you.

"Once the judgment is final and recorded, most common law nations, including Canada, will recognize them," says Philip Marcus, Maryland attorney and author of "Zen and the Art of Negotiation." "The creditor will need to find her, but once they do they can execute (the judgment) in her new province."       

If your permanent residency were not already finalized, walking away from your mortgage could even have kept that from happening. "Canada may not look kindly on walking away from debt," says Marcus. "They do not simply allow people to cross in to be permanent residents. There is substantial vetting by both provincial and national authorities, and ability to support oneself is a major criterion. She'd have strikes against her."

The one thing you shouldn't have to worry about is your Canadian credit score being affected by a foreclosure in the states. Credit scores do not cross over from the United States to Canada, and although experts disagree on whether that will change in the future, it's not likely to be anytime soon.

If you ever come back to the United States and your debts have not been resolved, you could face not only continuing collection attempts on any unpaid deficiency balance, but the negative mark of foreclosure on your credit report.

And there's the emotional toll to consider. Waiting for your old bank to come looking for you won't help you sleep. Banks have a huge backlog right now -- it could be years before they get to you -- and all that time you'll be wondering when it will happen and how bad it will be. That's hardly the best way to start your new marriage and life in a new country.

Please look for qualified legal help immediately. Even if your husband has to help you pay for it, it's important to clear your debts. Marcus recommends you find a good Maine attorney with real estate experience to negotiate a settlement with your bank that waives the deficiency judgment.

Congratulations on your new marriage and life in Canada! Don't let old debts keep causing you stress. Take action to deal with them and move on.

See related: How does moving overseas affect credit card debt?, Moving abroad? Your credit history might now follow, Will there be a global credit score someday?

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Updated: 11-24-2017