How Does Bankruptcy Affect Foreign Debt?
We have written before about how bankruptcy affects assets you hold overseas. Now we want to talk about a related issue—your foreign debt.
South Florida is home to many foreign nationals and people who travel regularly. It is not unusual for many of these folks to come to our offices with foreign debts that they are struggling to pay off, along with domestic debt. For example, they could have obtained a personal loan in a different country and now want to eliminate it. Or they could be a small business owner who took out a foreign loan for their company.
They typically want to know, “Can you eliminate foreign debts in a U.S. bankruptcy?” The answer is complicated, and we look at some of the considerations below.
The Automatic Stay Prevents Debt Collection in the U.S.
Once a debtor files for bankruptcy, the court enters an automatic stay that prevents creditors from taking action to collect on a debt. The good news is that the automatic stay will prevent a foreign creditor from collecting. But this protection lasts only in the United States. In other words, a creditor cannot seek help from a United States court to collect on a debt so long as the stay is in place.
If you leave the U.S., however, then your creditor could take action in a foreign court. So if you owe a debt to a Mexican bank and return to Mexico, your creditor could take action.
Provided you stay in the United States, the stay can be a big benefit. For example, if you file Chapter 13 bankruptcy, the stay is in effect for the full length of your repayment plan, which is three to five years. During that time, you can work to get current on your debt so that collection action will not start up when you exit the bankruptcy.
The Foreign Judgment Might Not be Enforceable
Many foreign lenders will sue in their home country and get a judgment against you for defaulting on the debt. Of course, this judgment is simply a piece of paper. Unless you voluntarily pay, the debtor needs to seize your property, such as a bank account or a home. And these actions require court approval.
Before a Florida court will approve any collection action, however, the debtor needs to domesticate the debt. Florida has a statute that lays out the requirements.
Depending on how much you owe, some creditors will not even go through the hassle because it takes too much time. A creditor in Italy where you owe $1,000 could spend that much getting legal help to navigate the U.S. court system. There are some obvious exceptions, however, where a creditor is certain to jump through hoops, e.g., you owe huge sums, or the creditor has offices in the United States and is familiar with our legal system.
You should carefully review all your foreign debt with a Plantation bankruptcy lawyer at Nowack & Olson, PLLC. Our team has helped many foreign nationals seek a bankruptcy discharge in Florida courts. Contact us today to learn more.