Will Bankruptcy Eliminate Foreign Debt?

Many people in Los Angeles have foreign debt. Maybe they live part of the year in a different country, or they have a credit card issued by a foreign bank. Whenever a lender is outside the U.S., the debt is usually foreign. One question many people have is whether they can eliminate this debt using bankruptcy in California.

The answer, usually, is “no.” You can’t use U.S. bankruptcy to discharge a foreign debt. However, you might not even need to worry about these debts in the first place unless you return to the country which issued the debt. Before filing for bankruptcy, contact Resolve Law Firm to speak with a Los Angeles bankruptcy lawyer in a free consultation. We can take a look at your debt profile and help you decide if bankruptcy is the sensible choice for you.

Can You File for Bankruptcy in the U.S.?

There is no citizenship requirement to file for bankruptcy here in the U.S. Under11 U.S.C. § 109, you can file so long as you:

• Reside or have domicile in the United States
• Have a place of business here
• Have property in the U.S.

You will need either a Social Security or Tax Identification Number to file, but that means even non-citizens can seek bankruptcy in the U.S.

However, before filing, you need to consider whether bankruptcy will eliminate your debts. There’s no point in filing if you can’t eliminate any financial obligations.

Bankruptcy will Not Eliminate Foreign Debt

The primary goal of bankruptcy is to eliminate burdensome debts. In a Chapter 7 bankruptcy, you can discharge qualifying debts rather quickly—usually in a matter of months. With a Chapter 13, you’ll make monthly payments for 3-5 years, with remaining debts forgiven at the end of the process, if they qualify.

Unfortunately, bankruptcy will not discharge a foreign debt. U.S. bankruptcy law does not have that kind of extraterritorial reach outside the boundaries of the U.S. The debt will remain, even if you file for bankruptcy.

Does this mean you shouldn’t file? It depends on your debts. You might have one loan from Mexico or Japan but also have burdensome debts from U.S. lenders. All in all, you might benefit by getting rid of the U.S. debts which qualify. Meet with a Los Angeles bankruptcy attorney to review in depth your current financial situation and whether bankruptcy can help.

The Automatic Stay Will Still Stop Collection Activity

Although you can’t eliminate foreign debts, the good news is that you will still gain the protection of the automatic stay while you are living in the U.S. The stay goes into effect once you file for bankruptcy protection, and it prohibits a creditor from undertaking collection activity.

As a result, a creditor can’t garnish your wages or even sue you in a U.S. court. So if a foreign creditor tries to file a lawsuit in Los Angeles County, the stay will prevent them.

The stay gives debtors some breathing room to get their finances in order. You might eventually free up enough money to deal with the foreign debt. In any event, the stay provides peace of mind, which is invaluable.

What happens if a creditor tries to sue you after you’ve filed? They could be subject to sanctions. That should be a powerful incentive for a California-based lawyer not to help a foreign creditor use the legal process against you.

Unfortunately, you’ll lose any protections if you leave the United States. For example, nothing will stop a Mexican creditor from suing you once you step foot back in Mexico. The same is true if you have debt from Canada, Israel, England, or any other country.

Should You Even Worry about Foreign Debt?

Depending on your situation, you might not even have to worry about any debts which originate outside the U.S. Here’s why.

Let’s say you default on a debt from a lender in Israel. If the lender wants to get money out of you, they might sue you in Israel and win a court judgment. Unfortunately, that judgment doesn’t mean anything in the U.S., where you are currently living. The creditor will need to “domesticate” (or register) the debt in a California court. Further, they need to show that the judgment they got against you is legitimate.

Some creditors won’t bother with trying to register a debt in a U.S. court. The balance on the debt might be so small that it’s not worth the effort to collect.

Instead, they might sell the debt cheaply to a collection agency. This involves transferring the right to collect the debt to a company that specializes in collections. Many US-based creditors do this, too.

We can defend you from any debt collection lawsuit. We might argue:

• There is insufficient paperwork or other documentation that the debt is valid. You aren’t obligated to pay a debt you didn’t take out.
• The statute of limitations has expired, so you have no legal obligation to pay the debt. You can just walk away.
• The foreign court did not have jurisdiction over you. Typically, the foreign court needs you to be in their country when you are sued. If not, a California court won’t even recognize the judgment against you as valid, so no collection activity will take place in the U.S.

Let’s Delve into Your Debt Situation

People have complicated financial lives. Often, they feel crushed by high debt payments but don’t know what to do. For many, bankruptcy is the sensible option—but you shouldn’t rush out to file until you have thought through all options.

Let’s connect.

At Resolve Law Firm, we understand how bankruptcy can transform lives. We have seen countless people gain a fresh start by going through the bankruptcy process successfully. They report feeling a huge weight lifted from their shoulders.

Still, some people are better off trying a different debt technique. Let’s review your finances and come up with a game plan that makes sense. Call our firm today to schedule your free meeting to discuss your debts, including any foreign debt.