Moving Abroad with Debt: What You Need to Know?

When a business owner struggles with unmanageable debt, they might be tempted to attempt an escape by leaving the country for good. Or they might be considering moving abroad for other personal reasons and are wondering what happens to their outstanding debts. 

That said, if they move abroad, does it mean commercial collection agencies can’t chase them for repayment anymore? Are they even allowed to leave the country permanently if they owe money?

Non-payment of debts might not be a criminal offence, which lets individuals obtain a visa. However, leaving the country doesn’t immediately wipe the slate clean. Let’s find out what happens.

Does Debt Go Away By Moving Abroad?

There are no laws stopping anyone from moving abroad if they have debt. But if they have taken on debt in the USA, they are contractually obligated to pay. It doesn’t matter where they choose to live. 

Living in another country can make it more challenging for collection agency services to locate and collect the debt. However, if they are avoided long enough, tax issues, lawsuits, and more are inevitable. Whenever the debtor returns to the USA, their financing options will be significantly limited.

What Happens to Debt When Moving Abroad?

Leaving the country does not erase the individual’s financial obligations. If they have outstanding debts, it remains their responsibility, even after relocation. Here’s what happens to the debt when they move abroad:

• Repayment is unavoidable: Debt doesn’t vanish just because they moved. Professional debt recovery services in their home country might still try to collect what’s owed.
• Possible legal action: Creditors can get a judgment against the debtor in certain cases in their home country. If this occurs, it affects the debtors later. Legal action can result in consequences such as wage garnishment, depending on local regulations.
• Continued collection attempts: International collections are more complicated, but the best commercial collection agencies in Houston work with global agencies. If the debtor still has US accounts, income, or assets, the agencies will keep attempting to reach them abroad.

So, despite moving abroad, unresolved debt can follow people in indirect ways. 

What are the Risks of Moving Abroad with Unpaid Debt?

There are more consequences involved than expected when anyone moves abroad with unpaid debt. Here are a few of them:

• Impact on US credit score: The biggest reason for paying debt is to maintain a good credit score. Leaving the country with unpaid debt might not feel like a huge deal.

Regardless, the inability to pay the debt negatively affects credit scores. When they return to the US, they are going to be stuck with that affected score.

• Canceled debts are taxed: If the debt is canceled, settled, or forgiven, the IRS can still make them pay for it. Where they are living doesn’t matter. The IRS categorizes it as income for tax purposes after the debt has been dismissed. This can become a potentially huge bill.

For instance, if the credit issuer writes off $10,000 of the debt, the IRS will consider this as $10,000 of taxable income. 

• Sued by professional debt recovery services or banks: Creditors are within their rights to sue the borrower after chasing them down for some time. And lawsuits usually don’t go the defendant’s way if they don’t show up in court.

If the borrower has left the USA with nothing behind, there isn’t much the court can do. So, if the judgment happens and there are US-based assets, the creditor gains permission to garnish those assets as payment. This can include savings, property, US-based income, etc.

• Loss of passport: The State Department might revoke current passports or deny a new one to get the borrower to pay their delinquent IRS tax debts. If they are abroad when the tax debts are verified with the State Department, a limited passport might be issued to ensure the borrower returns to the USA.

Are There Any Alternatives to Get Out of Debt Without Moving Abroad?

Depending on the situation, certain options can help to tackle debt without the consequences: 

• Debt consolidation
• Debt repayment strategy
• Credit counseling
• Debt settlement
• Bankruptcy

Not all creditors and collection services are looking forward to an expensive lawsuit. Most collection agencies in Houston, like Nelson, Cooper & Ortiz, LLC, will work with the businesses involved to figure out a beneficial solution.

Moving abroad might be a fresh start, but financial obligations travel from country to country as well. By settling accounts, keeping proper records, and contacting creditors, the financial stress before and after moving abroad can be reduced.