US Debt Solutions
I have US debt, am now residing in Australia, and am filing for bankruptcy here. What are my US debt solutions?
I am a dual citizen of Australia/US, resident in Australia since 1998. Since 2005, I have experienced periods of unemployment and have only managed to stay afloat by means of a personal loan and credit card (from Australia) and three credit cards (from US). I have also managed each time to keep all my bills paid on time until I again found employment and recovered. Until now. The problem is that I cannot predict when I will find my next job. It could be tomorrow, or three months from now. I have received credit counseling and am contemplating applying for bankruptcy in Australia. That would leave me with credit card debt of around US $25,000 for US credit cards. I have no assets, either in Australia or the US. I rent my home and have a 15-year old car. I have maintained a US bank account through Citibank, which I use for transferring payments for my three US credit cards. As I understand, if I choose to apply for bankruptcy in Australia, my US creditors will be notified and legally they will not be able to harrass me, but my US debts will not be forgiven -- thus, if I return to the US in the future, even for a visit, those creditors may legally pursue me. Can you advise me what options might be available to me with respect to dealing with the US creditors? Should I attempt to continue paying them? Should I contact them at all to discuss my situation and try to come to some arrangement? To date, I have found them rather heartless, (as when I rang to discuss interest rate rises), and can't imagine what lengths they might go to.
You have several options for dealing with your US debt. Before I discuss those options, I would be remiss if I did not mention one option that US creditors have regarding your debt.
Domesticating a US judgment in Australia
In the US, the judgments in one US state receive the full faith and credit of sister states. Before a judgment is enforced in a sister state, the judgment must be domesticated. This process is fairly automatic, though comes at a cost to the judgment-creditor.
There is no law that requires an Australian court to enforce a United States civil judgment automatically. However, the US and Australia are long-time trading partners with treaties that create economic ties between the countries. The debtor may attempt to domesticate a judgment in an Australian court.
As a practical matter, if a US resident enters into a credit card contract with a US bank, incurs (for the sake of argument) $1 million in debt, and then changes residences to Australia without repaying the debt, that creditor has the legal means to domesticate a US judgment in Australia. On the other hand, if a US resident incurs $100 in credit card debt and flees to Australia, it is unlikely that the US bank would go to the time and expense of finding the deadbeat and domesticating a judgment in an Australian court.
Of course, you will say, "My debt is between $100 and $1 million, what are the chances of the US creditor domesticating the debt?" I do not know the break-even point for domesticating a debt is in Australia. Even if a hard number like that existed it is impossible to predict the behavior of creditors.
Now let me discuss possible solutions to resolving your US debt.
The four primary concerns for most consumers are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the resolution program. Be sure to evaluate each program relative to your prioritization of these factors.
Since there are a variety of debt resolution options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, bankruptcy, and other debt resolution options, it is important to fully understand each option and then pick the solution that is right for you.
Credit counseling, or signing up for a debt management plan, is a very common form of debt consolidation. There are many companies offering credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors.
It is important to understand that in a credit counseling program, you are still repaying 100% of your debts -- but with lower monthly payments. On average, most credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan does show up on your credit report, and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy -- or using a third party to re-organize your debts.
Debt settlement, also called debt negotiation, is a form of debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are not paying your creditors. This means that a debt settlement solution of debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.
Many people think first of a debt consolidation loan when seeking debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.
It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30-year loan, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is no credit rating impact.
Bankruptcy may also solve your debt problems. A Chapter 7 bankruptcy is a traditional liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect, it is much harder to file for bankruptcy. If you are considering bankruptcy, I encourage you to consult with a qualified bankruptcy attorney in your area.
You may be curious what may happen if you do nothing. If you stop paying your unsecured debts, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.
Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening. Thankfully, the Fair Debt Collections Practices Act has rules governing the behavior of collection agents. However, unscrupulous debt collection agents do not follow these rules.
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against the debtor. This is not a frequent occurrence, but it is within a creditor's rights and a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor’s favor. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment.
Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result doing nothing and allowing default is a poor option for most consumers.
US Debt Solutions
Although there are many forms of debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation option that fits for you.
Lastly, here are some fast tips for your own quick Debt Consolidation Evaluator:
1. If you have perfect credit and have equity in your home -- consider a Mortgage Refinance.
2. If you can afford a healthy monthly payment (about 3 percent of your total debt each month) and you want to protect yourself from collection and from going delinquent -- consider Credit Counseling.
3. If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND you are willing to deal with adverse credit impacts and collections -- then evaluate Debt Settlement.
4. If you cannot afford anything in a monthly payment (less than 1.5 percent of your total debt each month) -- consider Bankruptcy to see if Chapter 7 might be right for you.
Bills.com makes it easy for you to apply for traditional forms of debt relief.
I hope this information helps you Find. Learn & Save.