What happens to your foreign debts if you go bankrupt in the UK?
You may have debts overseas when you go bankrupt. So what happens to them?
Last week one of our advisors had back-to-back conversations with clients who wanted free and impartial advice about mortgage shortfalls. Nothing unusual in this, except that in both cases the clients wanted details of what action to take over mortgage shortfalls on Spanish property.
Both clients were facing personal bankruptcy and they wanted advice on how the Spanish debt would be dealt with.
The pain is Spain
We’re all aware that the current economic crisis is hitting Spain hard and we’ve all seen the collapse of their housing market on the news. We’ve blogged before about people running off to Spain to avoid UK debts but it seems it can work just as easily the other way around.
Many UK citizens purchased Spanish property over the last few years, often using Spanish-based mortgages. The collapse of the property market there has meant that many UK residents have been left with a Spanish mortgage on a property that often has significant negative equity.
We’re experts on UK debt but we don’t advise our clients on what the debt collection laws are in different countries. However we do sometimes hear of very strict debt laws in other parts of the world.
This might explain why we sometimes hear the phrase ‘bankruptcy tourism’. The UK does sometimes attract people who move here purposely to go bankrupt and free themselves from problem debt in other countries.
If either of the clients who called went bankrupt in the UK they could include the Spanish debts within their bankruptcy. This would mean that the debts would not be enforceable in the UK by any Spanish creditor. However, the debt may still be enforced in the country of origin. So if the clients went back, they may find the Spanish creditors waiting to enforce collection of the debt through their own laws.
Our bankruptcy law hardly makes us a soft touch but we do sometimes attract people who are escaping harsher laws in other countries, not just Spain.
One recent example saw Westlife singer Shane Filan declaring himself bankrupt in the UK for Irish debts, following a string of other UK bankruptcy petitions made by victims of the Irish property crash.
Life’s a beach
Bankruptcy is often the quickest and cheapest way to be free from problem debt but it does entail handing over the control of your financial life to the court-appointed Official Receiver.
This can include paying any surplus income into the bankruptcy for a period of time (usually three years). You would also relinquish control of any assets. This can happen whether you’ve got property in Seville, Stockholm or Surbiton. What’s more, your credit rating is affected for six years even after you are discharged from bankruptcy, making it difficult to secure credit in the future. It is definitely not an easy option.
We’ve blogged before about unscrupulous firms who charge fees for giving basic bankruptcy advice. These are to be avoided at all costs; all our bankruptcy advice is free and impartial but specific to the UK. Debts abroad can still be an issue if you decide to return to the country where the debt was originally taken out.