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To file or not to file for bankruptcy


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We are on fixed income-----one on disability and other newly on Social Security.   House is for sale, but no interest in spite of lowering price significantly.   Can't afford utilities although budget plans.   Going into debt more each month with overuse of charge cards to make ends meet.   We own outright another home in Costa Rica and just want to retire there and leave the whole mess here and start anew.  We were raised to take responsibility for our debts, but are drowning and seem to be sinking fast.   Looking for options and considering bankruptcy.   Any suggestions, advice, input, etc would be appreciated.  Many thanks.

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Hard question because of how hard it is to collect debts outside of the USA. I think the first thing you need to do is get a competent real estate agent who knows what the house will sell for in your community. If that means short sale, then so be it. If you cannot sell as a private seller for the loan amount in Michigan, there is no way the bank will be able to. This will have to be done regardless of whether you file for BK or not so you might as well do it.

Beyond that, it really depends on if you want to leave with everything tied up or you don't care what happens to your name in the USA. A ch 7 BK will stop all collections and clean everything up but you probably will not be able to borrow money in the USA for any reason for at least 5 years and maybe longer. If you just leave, they will probably sue you and get a judgement in Michigan but they cannot take any assets in Costa Rica without getting a judgement there and many nations are not thrilled with how banking is done in the USA so it will be much harder (also include the fact that the governments down there are not happy with how the USA puts its nose into their affairs).

If you plan on leaving the USA with no assets other than the cloths on your back and never plan on returning or doing business here, a BK might be a waste of time because leaving the country will have almost the same effect. I would discuss this with a BK lawyer however.

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Just had another thought. In a BK proceeding, you might be required to declare and liquify the foreign property. That is something to consider too.

Absolutely unless you can find an exemption to cover the value of the property.  Bk trustees have no problem selling property located outside of the US and are well versed in accomplishing such a task.


Something else to consider. . .  if your sole source of income is SS and disability, with the exception of the foreign property, you may be judgment proof.  SS cannot be garnished at the source (with the exception of the IRS if you owe back taxes) and cannot be seized after receipt so long as it is not commingled with other $$.  Disability, if it is Social Security Disability, is likewise protected.  If it is private disability you would need to review the state exemptions to see if the $$ is protected both at the source and after receipt if not commingled. 


As to the foreign property, one has to wonder if a creditor (as opposed to a bk trustee) would even attempt to go after it.  Selling real property located in Costa Rica is probably not so simple.  Unlike a bk trustee who sees such things all the time, a US creditor probably does not know the ins-and-outs of such transactions and, while the creditor can figure it out, the cost of doing so may not be something it is willing to cover.



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The problem is that most foreign countries to not agree with the US Legal system when it comes to civil cases and hence, a judgement would simply be a piece of outhouse paper in those countries. We had a member here years ago who went to China and his creditors could not touch him or any of his property in China. I am sure the situation in Costa Rica is the same as Central and South America countries are not happy with USA interference in their affairs.

This would mean that the US creditor would have to do another trial in Costa Rica where the courts may not be as friendly to their evidence as they were in the USA. Plus the wheels of justice work more slowly in Costa Rica than they do in the USA. It would probably be cost prohibitive to do so and they will probably look for any assets in the USA and/or let the judgement sit hoping that the debtor does come into US assets.

I also have not seen a creditor force someone into personal BK yet so I am not sure if that is an option for them or not.

In BK however, all your property is put into a BK estate with a trustee assigned by the court. You do not own any property anymore, the estate owns the property. All the trustee would have to do is through an agent in Costa Rica, they can prove they now own the property and can sell it. No need for another trial in Costa Rica. This is unless there is a state or Federal exemption that allows you to keep the property which is doubtful.

Based on this, I would think that the best course of action would be to get rid of the house in Michigan by hook or by crook. If you can get a short sale done, do that and move when the closing is done. Otherwise, move as much as possible to Costa Rica and then do a voluntary foreclosure where you hand them the keys to the house and then say goodbye to the USA right from the bank. If you are thinking about morality, ask yourself what the bank would do if the situation was reversed? They would run as quick as they could so don't feel bad about doing the same thing.

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