Consequences of abandoning US credit card debt in Canada?

July 8, 2021 2:03 PM

I've moved to Canada from the US. I don't intend to return to the US. I have $25K of debt on several US credit cards, which I can't currently pay. What would be the consequences of defaulting? Specifically, would there be problems getting a mortgage in Canada?

I'm a Canadian permanent resident. I'm not a US citizen or permanent resident, but I spent many years living and working there on various visas. In that time I accumulated a bunch of credit card debt for various reasons (mostly because of income limitations to do with my visa, and partly because of health-related expenses). It's unlikely that I'll want to return to live in the US, and I can't currently pay this debt. I've been making regular payments so far. Should I just stop and default?

As far as I can tell, bad US credit doesn't follow you to Canada. In terms of consequences it seems like what would happen is (a) obviously my US credit rating would take a big hit, but that shouldn't matter to me now; (b) possibly I could get sued for my US assets. I hardly have any US assets -- I still have a US bank account for convenience, but there's very little in it. So that also doesn't seem like a big factor.

One thing I've read online is that Canadian banks sometimes ask to pull a US credit check when negotiating a mortgage offer, but I can't tell if this is common or what the details are. A mortgage expert on Facebook told me they do this "if they suspect you have US debts or liabilities", but I'm not clear what that means in practice. I'm not looking for a mortgage at the moment, but a couple years down the line I might be, and I don't want this to be an issue. Could it?

If I do decide to default, how should I go about it? Specifically, should I try to consolidate the debts on as few cards as possible so that I'd be dealing with fewer creditors? Or conversely, spread it out as much as possible so each of them has less incentive to come after me? And should I get in touch with the card issuers and say "sorry, I can't pay this debt" or try to negotiate a settlement, or just miss my payments and leave things to them? Can they sue me in US court if I don't have a legal residence in the US anymore? What other parts of this should I be thinking about?

posted by anonymous to Work & Money (13 answers total)

If you apply for a mortgage, under most circumstances, you will be asked to disclose your assets and liabilities. If you don't disclose the credit card debt, you'll be committing fraud. I'm not a Canadian lawyer or even a Canadian, but I believe Canadian banks, and the law, frown on this just as much as they do in the U.S.
posted by praemunire at 2:13 PM on July 8, 2021 [5 favorites]

The kind of due diligence that's done for a mortgage is way more than just looking at your credit score, and I think it's unlikely that walking away from $25,000 in US credit card wouldn't be discovered just because you were applying for a mortgage in Canada. Because the US and Canada are such close trading partners, it would not be terribly difficult for the holders of your debt to have judgments against you domesticated in Canada. For that matter they might be able to sell your debt to a Canadian collections agency assuming they figure out you are domiciled in Canada.

Someone who can't pay off their credit card debt would not be a good lending risk for a bank, and I have to think accumulating and defaulting on that much debt would make it rather difficult to get a mortgage in any country. Could you get a low interest consolidation loan for $25,000 to erase the credit card debt and then pay off the consolidation loan in a few years?
posted by slkinsey at 2:24 PM on July 8, 2021 [1 favorite]

I wouldn't just walk away. In Canada a credit counselor can manage writing down/off credit card debt through either a structured settlement or bankruptcy. ( Credit counselor sounds skeezy but it is the government name for the people registered and regulated to perform this service). I have no idea if they can handle international debt, I suspect not. But an initial consult is free and I'd talk to them about options.
posted by Mitheral at 2:24 PM on July 8, 2021 [3 favorites]

Hi there anonymous, I’m BlueSock, a Canadian Cop. Praemunire is right about the fraud thing…

There are two levels to this question, legally and realistically speaking.

Level 1: If it’s minor credit applicaiton (car loan, credit card) they pull your Canadian credit file and MAYBE overlook your US one. You may get away with that. You can probably do this legally as if they don’t ask for a full reporting of your current debts and they don’t decide to do a thorough check then it’s not your fault if they don’t notice your US debt. That’s not going to get you much more then a $1,000 starter credit card though, I’d guess.

Option 2: For serious amounts of money or a mortgage the application will require more detail, like a work and address history and a full and honest listing of your current debts. You could lie, but it’s a bad idea because a) it’s fraud b) it’s probably not going to work (your lack of actual work and address history in Canada during the relevant times will jump out pretty fast). So if you do lie you’ll get caught, if you don’t lie then they’ll know to pull your US credit history and they’ll still know, but you won’t be facing jail time or potentially losing your PR status.

To be clear IMNAL and IAMYL but you should be aware fraud over $5,000 is a very serious offence, specifically it’s an indictable offence with a max setence of 14 years. Anything with a potential sentence over 10 years (regardless of the actual sentence you get if convicted) makes you inadmissible to Canada and can/will result in the revocation of your PR status on conviction.

You should probably look into filing for bankrupty in the United States (Canada does not require you to still be in the country to file, so I’m just guessing the US is the same). It’s painful but it puts a solid end date on things and gives you certainty about when you can accurately claim to be debt free.
posted by BlueSock at 2:26 PM on July 8, 2021 [23 favorites]

Also regarding your own point B) You can get sued for your Canadian assets, US judgements are EASILY enforceable in Canada. We’re friendly like that.
posted by BlueSock at 2:28 PM on July 8, 2021 [6 favorites]

Be aware that in most jurisdictions in the US, the statue of limitations resets on a debt collection every time to you acknowledge the debt. Even telling them "Sorry, I can't pay this debt" would likely reset the clock and leave you exposed to litigation for a longer amount of time. If you do end up doing this (FWIW, I think this is a very questionable idea), you want to be a ghost in the wind - do not continue to have any contact or acknowledgement of these lenders. Also, the more "strategic" you are about concealing and avoiding this debt (one card vs multiple, asking this question, not telling your mortgage broker), the more likely you get into much more serious things like fraud. Not paying your debts is one thing, but fraud is a whole other level of crime.

Your best bet IMO is to utilize some type of loan consolidator/credit counselor (or follow reputable online guides to do it yourself) that will begin to dispute and negotiate your debts. When figuring out how to settle, the creditor will have some internal system for valuing the debt. If you offer them even a dollar more than they think they will get out of the debt, they will take it. The fact that you are not a citizen and have limited easy-access assets means the value of your debt is lower than any America living, American citizen debt and they would very likely accept some shockingly low payoffs to settle the debt. It's not unheard of for US residents to manage to settle their debt down by 50%+, and they are much more easily litigated than you are. You are a foreigner living in another foreign country in their eyes; they'll very likely take what they can get out of you (as their expected payout on these debts is pretty near $0)

Try and clear this up above board - it probably won't cost you nearly as much as you think.

PS: This isn't legal advice and I'm not a lawyer and this is all based on my own experiences only.
posted by _DB_ at 2:30 PM on July 8, 2021 [3 favorites]

Also if you’re a US citizen your Canadian bank is required to collect your SSN for US/Canada tax enforcement purposes. Once they have it I’m sure it’s going to occur to them to use it for a credit check, especially if you’re applying for a mortgage.
posted by BlueSock at 2:31 PM on July 8, 2021 [3 favorites]

the us companies can also sell the debt to Canadian companies and then it's entirely searchable and actively enforceablein Canada.
See eg intrum who work in most countries in the world, they sell the debt to themselves from different branches of their own company.
posted by lalochezia at 2:27 AM on July 9, 2021

I worked briefly for a “soft credit” company, the new generation types that look at your spending habits when extending credit — we check both sides of the US CAN border no matter your citizenship.
posted by tilde at 6:22 AM on July 9, 2021

When I was a PR, not a citizen, the banks looked at my US credit, found something I wasn't aware of, and that I needed to fix to get best rates.

I've since taken part in buying another house in Canada, but as I'd never re-entered the US/done business in the US, it's understandable that my credit wouldn't have had any changes, so I'm not sure if they ran my US credit, or never checked my US credit since I was a Canadian citizen. I.E. I don't recall a "country of birth" option in the forms.

I'm a dual citizen, I have never given my SSN, or been asked, when opening a bank account. I'll note that I haven't opened a new account in well over a decade.
posted by nobeagle at 9:10 AM on July 9, 2021

Someone has to say this: legally, you might get away with it. But ethically and morally you are bound to repay your debts. Perhaps default is convenient now, but how will you feel about yourself and your decision ten years from now?
posted by SPrintF at 9:29 AM on July 9, 2021 [1 favorite]

But ethically and morally you are bound to repay your debts.

That is by no means the way the credit card companies themselves, and businesses generally, look at the world. They treat defaulting on a contract as a strategic decision, not a moral one. Additionally, OP has already paid the credit card company to assume the risk of default, in the form of interest higher than the fed funds rate, not to mention coerced participation in a rickety, error-prone credit surveillance scheme that constantly leaks personal data to hostile actors.

Finance entities use people's sense of decency against them. It's a powerful weapon, if you have no sense of decency yourself.
posted by praemunire at 9:35 AM on July 9, 2021 [4 favorites]

As someone who has both filed for bankruptcy to eliminate medical debt, and also long researched leaving the US to escape the student loan debt I’ll likely still be paying in my 50s, I’d suggest taking advantage of bankruptcy if at all possible. After 7-10 years (usually), the bankruptcy won’t be part of your credit report anymore and you can just move on. That time goes faster than you think. As time went on my credit score has recovered from the 500s to the high 700s and I was able to buy a home last year. If you take the right steps a debt like that does not have to follow you for the rest of your life.
posted by dis_integration at 9:12 PM on July 9, 2021