If I Move Out of the Country, Will My Debts Follow Me?


Carrying a huge amount of debt can make drastic actions seem suddenly appealing. Unpaid debts (especially those with high interest rates) may have snowballed until they finally became too much for you to handle.  Realizing that just the monthly minimum payments are more than you can afford may be the wake up call you needed to finally take steps toward getting out of debt.

We’ve discussed a number of different options for New Jersey debt relief here on our bankruptcy blog. Filing for bankruptcy is one way to get rid of nearly all (or most) of your debts. Of course, you’d have to pass the Means Test in order to be approved for bankruptcy in NJ, but if you’re reading this because you can’t pay your minimum payments, you’ll probably qualify.

In the past, we’ve had people ask us if moving to a different state would erase debt. While you can move out of state if you want or need to (for work or other personal reasons), doing so won’t eradicate any of your debts. The only exception to this might be if you owe someone a large personal debt and you don’t leave a forwarding address for that person to find you. Of course, if s/he files a lawsuit against you, chances are that you’ll eventually be discovered by a process server.

Can My Debts Follow Me to Another Country?

The reason that moving from one US state to another won’t eradicate your debts is because every state in this country follows the same credit rating system and reports to the same reporting bureaus.

In contrast, other countries abide by different practices and policies when it comes to determining your credit worthiness. Additionally, a contract or agreement that you entered into in the United States (i.e. a credit card agreement) is not enforceable outside of the country. It is actually illegal for any of your creditors to file a lawsuit against you in any country that you aren’t currently living in.

[Sounds great, right?]

The bottom line is that you may be able to move abroad without your US/New Jersey debt ever catching up with you.

But! (There’s always a but!)

Should you decide to go through with this idea, you’ll need to have plenty of actual money (cash) in order to establish your residency abroad and to cover your living expenses. If you’ve been deeply in debt in the US for some time, it’s highly unlikely that you have a lot of cash lying around.

If you don’t have enough cash on hand to buy a home, you will quickly discover that it is much more difficult to borrow money (and establish a credit history) in other countries as compared to the US.

Additionally, there’s one entity that you’ll be hard-pressed to permanently escape – the IRS. If you are a United States citizen, you are expected to pay income taxes whether you live in the US or not, and this holds true even if you permanently leave the country. The only way to eliminate some of your delinquent tax debt is filing for bankruptcy, and even then there are very specific rules about which taxes can be discharged.

Any past due taxes that you accrued before you leaving the country will keep compounding every year that you remain a US citizen, no matter where you call ‘home.’ Furthermore, any creditors (aside from the IRS) to whom you are indebted have a right to write off any amount you failed to pay. When this happens, they may also file a ‘Cancellation of Debt’ form (1099-C) with the IRS. A 1099-C form essentially counts the past due amount as income that you ‘earned.’ Guess what the IRS is going to do with that additional ‘income’! That’s right – they’re going to tax it.

Short of  renouncing your United States citizenship, you’ll be hard-pressed to elude the IRS. Even moving to Mars probably wouldn’t help you evade tax debt.

Could Moving to Another Country Help Me Lower My Debts?

Ah – now you’re onto something! Moving out of the US actually is a great idea for those who are plagued with significant amounts of debt and want to pay it off rather than out-run it.

Although the cost of living in the United States isn’t the highest in the world, there are much more ideal places to live if you’re looking to free yourself from debt. As long as you have a way to make money, moving to a country with a significantly lower cost of living will mean you can pay your debt off much faster than if you remained living in the US.

With this approach, you’ll be able to breathe easier and sleep better at night knowing that you’re doing the right thing by paying back the money you owe. You will also get to experience a new culture and way of living, which is a pretty cool bonus! Your US citizenship will remain intact, and your credit score will soar, leading to a variety of options and financial freedom in the future.

Image credit: Megan Fitzgerald

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