Bankruptcy or consumer proposal from abroad – is it possible?

Posted on 16 July 2023

Written by Alan Spergel

Do you have Canadian debt while living outside of the country? Considering filing bankruptcy or consumer proposal from abroad? Or considering ignoring it, hoping it will go away? Being overseas can add another layer of complexity to having substantial debt or being chased by creditors based in Canada. You might even be facing threats of legal action, like a wage garnishment, bank account freezes, or a lien against your property. In these scenarios, it is important to tackle it quickly by speaking to a Licensed Insolvency Trustee to avoid any potential consequences. You may therefore be wondering if bankruptcy or consumer proposal from abroad is possible. In this article, we explore what happens to your debt, and whether or not it is possible to file bankruptcy or consumer proposal from abroad. At Spergel, we have been helping individuals to gain relief on cross-border debt for over thirty years, no matter what their circumstances.

Does debt follow you if you leave Canada?

This is a question we are often asked at Spergel. If you have debt in Canada and are considering a move overseas, it is a fair question to wonder whether your debt will follow you if you leave Canada. The good news is having debt in Canada will not stop you from moving to a different country. The bad news is that the debt will remain in Canada, and you will need to make the respective payments or gain debt relief. While you might think that leaving Canada is essentially an escape and that creditors will not be able to reach you, this is very risky and you will still need to pay back the debt. As creditors are legally entitled to their debt repayments, you are still indebted to them. If you choose not to repay your debts while overseas, you could face trouble when you return to Canada. Your creditors could decide to pursue legal action against you, and you will likely struggle to obtain any new credit or open a bank account again until the debt is resolved.

How does moving overseas affect bankruptcy?

Bankruptcy is the legal process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee. They will be sold with any proceeds going towards the repayment of your creditors in exchange for the clearance of your unsecured debts. Bankruptcy is the most effective – and often quickest – way to a fresh financial future, and has a number of advantages. Although many people believe bankruptcy leaves you with nothing, this is not the reality – you can keep items like your home and vehicle up to a certain threshold. It is possible to move overseas even if you have filed bankruptcy in Canada. Whether you file before or after moving abroad can affect your experience of filing bankruptcy, however. Generally speaking, provided you meet the eligibility criteria laid out by the Bankruptcy and Insolvency Act, you should be able to file bankruptcy. Below, we outline the key differences of bankruptcy before and after moving.

Filing bankruptcy before moving overseas

There is nothing in the Bankruptcy and Insolvency Act that prevents individuals from moving overseas after filing bankruptcy. You will, however, need to fulfil your bankruptcy duties. These include things like attending credit counselling sessions, responding to your Licensed Insolvency Trustee, and reporting your income. Provided you undertake these tasks, there should be no issue with your bankruptcy.

Filing bankruptcy while living overseas

It is still possible to file bankruptcy in Canada while living overseas. You will need to meet the eligibility criteria and fulfil your bankruptcy duties, despite not residing in Canada. These days, meetings are often held virtually and so you can continue to attend these online. You will need to have a Canadian bank account, and respond to your Licensed Insolvency Trustee just as you would if you were living in Canada.

What are the requirements for filing bankruptcy outside of Canada?

Canadian law defines that you are eligible to file bankruptcy if you:

  • Have conducted business in Canada in the past year; or
  • Have been a resident of Canada in the past year; or
  • Most of your assets are in Canada

This is fairly vague, and there are a few more elements to consider before filing bankruptcy in Canada while residing overseas:

  • You should have a Canadian address for correspondence
  • You should try to meet a Licensed Insolvency Trustee at least once before filing. While an initial consultation can be carried out virtually, one face-to-face meeting is required under bankruptcy law to complete the process
  • You will need to attend two credit counselling sessions in person
  • You will need to be available should there be a creditor meeting or discharge hearing, although this is unusual
  • You will need to declare any assets that you have, including any outside of Canada
  • You will need to report all of your debts, including any outside of Canada

Although many individuals worry about this, you will not be stopped at the border when entering Canada just because you owe debts in Canada.

How does moving overseas affect a consumer proposal?

Now you know that it is very possible to file bankruptcy while living overseas or to move after filing, you may well be wondering if the same is true for consumer proposals. A consumer proposal is a popular bankruptcy alternative that can reduce your unsecured debt by up to 80%. It is the process of working with your Licensed Insolvency Trustee to establish an affordable monthly repayment figure. Your Licensed Insolvency Trustee will then work to negotiate this figure with your creditors. If approved, you will only need to make this manageable monthly payment for a period of up to five years, and any remaining debt will be cleared. There are a number of advantages of a consumer proposal, including protection from creditors and the ability to keep your assets. At Spergel, we have a 99% acceptance rate on any consumer proposals we file. Below, we outline how a consumer proposal might be impacted by leaving the country or filing while overseas.

Filing a consumer proposal before moving overseas

If your consumer proposal is approved by your creditors, you will pay a reduced amount of repayment as part of your manageable monthly payments across a fixed period of time, up to five years. It is more than possible to move overseas after filing a consumer proposal. You will just need to make sure you fulfil your duties, including making your payments on time, and comply with your Licensed Insolvency Trustee.

Filing a consumer proposal while living overseas

It is still possible to file a consumer proposal in Canada while living overseas. You will need to meet the eligibility criteria for filing a consumer proposal, and you will need to fulfil all of your duties, even if you are no longer living in Canada. Meetings can be conducted virtually, and you will need to keep your Canadian bank account and respond to your Licensed Insolvency Trustee’s requests just as you would if you were still living in Canada.

How does moving abroad affect what creditors can do?

Now you know that it is possible to file bankruptcy or a consumer proposal before moving overseas, or while living overseas, you might be wondering how this impacts the powers of your creditors. If you have left Canada, have not been paying your creditors, and have not filed a form of debt relief, your creditors can still pursue legal action against you. They are well within their rights to sue you, and continue to collect on their debts no matter where you are in the world. If you do not repay your debt, or make a plan to do so, it will likely have a negative impact on your Canadian credit report. Creditors could also try to obtain a judgement if they are owed a substantial amount of money. This judgement could be recognized by your new country of residence. This could mean that your creditor can collect on the debt in your new home.

What else should I consider regarding my debt when moving overseas?

There are some other considerations to make before moving abroad when it comes to your debt:

  • Your Canadian credit report will not follow you overseas. You may be worried about taking a poor credit score with you overseas, but thankfully you will not need to do so. In your new country of residence, you will need to build a new credit history. While it can be challenging to do this all over again, and having to try and obtain credit, it does give you an opportunity to start afresh.
  • A statute of limitations still applies. A statute of limitations is unique to each Canadian province, and dictates the amount of time a creditor has to pursue legal action against you. This amount of time is dependent on the type of debt that you owe. If, for instance, you owe tax debt or student loan debt, these will not be subject to the statute of limitations for your province. If you have questions on the specifics of the statute of limitations for your province, you should speak to your Licensed Insolvency Trustee.

What happens if you do not file bankruptcy or a consumer proposal?

You might be wondering if you need to file bankruptcy or a consumer proposal, or if you can simply ignore your Canadian debts if you are moving or living overseas. If your debts are left unpaid and unaddressed, creditors and collection agencies can continue to collect on overdue debts if they are able to locate you. They could continue to contact you and threaten legal action against you. Taking legal action in a different country can be more challenging. Your creditors in Canada must first sue you in Canada, then they have to transport the lawsuit to the foreign jurisdiction for certification. If this happens, they can then continue to collect wherever you live overseas. This can be a very expensive process and so it will often only really be carried out unless the outstanding debt is substantial. In order to avoid any kind of legal action, it is sensible to handle your debts and gain debt relief by speaking to a Licensed Insolvency Trustee at Spergel about your available options.

Do Canadian debt reflect on foreign credit reports?

If you are leaving substantial debts behind you in Canada, you may well be worried about the impact this can have on your overseas credit report. While credit bureaus like Equifax operate in other countries like the US, your Canadian debts will not be reported to overseas credit bureaus. This means that should you have a poor credit score in Canada, you could start afresh and gain credit in another country. Your Canadian debts will, however, reflect negatively on your Canadian credit report. You should consider this if you plan to return to Canada after moving overseas. If you are considering moving back to Canada one day and have significant outstanding debts or wish to stop collection calls for good, you should look to file a consumer proposal or bankruptcy before moving. This will simplify your financial circumstances overall, and avoids any potential cross-border issues that you might face.

Ultimately, it is more than possible to file bankruptcy or consumer proposal from abroad. You can file before or after moving overseas, provided you are eligible and fulfil your duties. If you are concerned about your debt and do not know what to do next, book a free consultation with Spergel. Our expert Licensed Insolvency Trustees are here to help you assess your options and reduce or eliminate your debt for good. Reach out today – you owe it to yourself.

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Alan Spergel

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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