What happens when I have a foreign debt I can no longer pay?

Occasionally, I will see a question come up on the internet regarding foreign debts and whether those types of debt are dischargeable in a bankruptcy that is filed in the United States. The simple answer is yes the debt is dischargeable in a United States bankruptcy case. The basic issue regarding discharged debts, even foreign ones, is enforcement. All debts that have been discharged in a bankruptcy case filed in the United States are protected from future collection by a creditor through the injunction that is established by the Discharge Order.

It would be unusual that a foreign company would pursue a debtor through the US court system because the courts may not recognize the debt. There is a principle called judicial comity where the courts of one state or jurisdiction will give effect to the laws and judicial decisions of another out of deference and respect for the other state. This happens many times here in the US when companies file lawsuits in their own state, get a judgment, only to find out that the debtor no longer resides in the state. The company then has to validate the judgment in the state where the debtor resides. When dealing with foreign entities, such comity may not be established as there would need to be some form of a treaty between the US and the foreign country regarding collection of debts. I am not aware that any such treaties exist.

The downside to getting a discharge of a foreign debt within the confines of a United States Bankruptcy Court is that such discharge is probably not recognized by the foreign country where the debt was incurred. For example, if a debtor incurs a debt in Canada, a US bankruptcy discharge will prevent the Canadian company from collecting the debt in the US but the debtor could still be face collection if he relocates to Canada. Or to whichever country the debt was incurred. If the debtor were to want a discharge of the foreign debt in the foreign country then he would have to utilize the bankruptcy laws of that country. Therefore, provided that the debtor does not set foot inside the foreign country again, he has nothing to worry about. If he does set foot inside that foreign country, he could be subject to harassing creditor collection actions.

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