Question:
Dear Steve,
My current debt across multiple banks is around $30,000. My minimum payments are close to half of my income and I cannot afford them.
I just moved out of the country for personal reasons and have continued to make payments so far.
If I could cut my monthly payments in at least half I could repay them over a longer period of time but I would also consider filing for bankruptcy especially since my credit record won’t affect me outside of the country.
However, since I’m no longer local I’m not sure how I’d go about that process as an in-person meeting would not be possible.
Should I talk to a professional (who exactly) to try and have them negotiate total debt with the banks in order to lower monthly payments or would it be possible for me to file for bankruptcy while out of the country (since the effect on my credit won’t affect me)? Thank you!
Melanie
Answer:
Dear Melanie,
The best way to close the door on the old debt would be to file for bankruptcy. That would stop the creditors from suing you and winning judgments in your absence.
But I understand you are not currently planning to return so the easiest thing to do would be to do nothing and ignore all attempts to collect on the debts. Do not talk to a collector and just be silent on the old debts.
If you ever return to the United States for more than a visit, you can file bankruptcy then to terminate the debt mess back in the U.S. that will be left behind.
The rest of the issues about where you would file bankruptcy in the United States when that time comes are really nothing to worry about now.
It is entirely possible to negotiate settlements on your debt that may be payable in smaller monthly installments but before you do that I’d first make sure you’d be able to make all the future payments. Negotiating smaller payments in a settlement and then not making them is not a solution.
Also keep in mind, if you do settle the debt the amount of debt forgiven by the creditor will be reported as a bad debt. You may owe income tax on that forgiven debt and it will be reported as a bad debt on your credit report for the next seven years.
Before you leap at settling, I’d suggest you first get settled in your new location and make sure you have money available to even divert towards any payment plan. Besides, if you are going to settle your debt for less than you owe whoever helps you with that is going to instruct you to stop paying and fall behind anyway.
If you wanted to come up with a master plan for tackling the situation I would suggest you have a talk with my debt coach friend Damon Day.
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Asked question about how to deal with U.S. debt after moving out of the country.