Given the many Canadians who have business, assets, work or winter in the United States (“US”), it is not uncommon for someone in Canada to owe money to a US lender. If you went to school in the US, you may even have US student debt. How US debts are treated in a bankruptcy if you cannot repay those debts depends on how deeply your other financial arrangements may be tied to the US.
Difference Between US Debt and Canadian Debt
The credit reporting system is not shared between Canada and the US. While Equifax may exist in both countries, they do not share reporting information. First, we need to understand the difference between a US debt and a Canadian debt in US dollars. If you shop in the US frequently, you may visit your local Canadian bank and apply for a US dollar credit card to use while there. Charges you make on that card are billed in US dollars, and you may even pay them from a Canadian US dollar bank account. In this case, your debt may be in US dollars, but it is a Canadian debt.
Now, let’s say that you vacation in Florida for 5 months every year, so you decide to apply for a US department store card there. In this case your US credit card, say from Macy’s or Target, is issued by a US lender. Any charges, and balances you carry, on that credit card are US debts. In other words, a US debt is not based on the currency of the debt. A US debt is one issued in the US by a US lending institution.
Filing a bankruptcy or proposal in Canada means creditors can no longer pursue you for US debts in Canada for that debt.If you default on a US debt, your account will likely be referred to a collection agency in the US. It is likely they will attempt to collect through phone calls and notices. However, it is very difficult to pursue collection if you are living in Canada. To take stronger action like garnisheeing your wages or freezing a Canadian bank account, they would have to sue you to obtain a judgement in Canadian court. If the debt is large enough, a US creditor or collection agency may be willing to do this, however given the cost, it is unlikely to happen for small debts.
Can US creditors still pursue me if I file for bankruptcy in Canada?
If you file insolvency in Canada, you are granted a stay of proceedings against creditor actions in Canada. Filing a bankruptcy or proposal in Canada means creditors can no longer pursue you for US debts in Canada for that debt. Technically your US debts are included in a bankruptcy or consumer proposal however the debt is only discharged in Canada.
A Canadian Licensed Insolvency Trustee is only licensed to file insolvencies in Canada.
Things get a little more complicated if you have assets in the US or earn income such as wages in the US. In this case, your US creditor can still pursue legal action to collect against your US assets or your US income. It may be necessary, then, to file insolvency in both countries. To file bankruptcy in the US, you must work with a US bankruptcy lawyer. A Canadian Licensed Insolvency Trustee is only licensed to file insolvencies in Canada.
How are Credit Ratings Impacted in Both Countries?
A US debt is one issued in the US by a US lending institution.
The credit reporting system is not shared between Canada and the US. While Equifax may exist in both countries, they do not share reporting information. Your Canadian bankruptcy or proposal will appear on your Canadian credit report. If you fail to pay US creditors, the default will appear on your US credit report. If you file bankruptcy in the US, this will also only appear on your US credit report.
In summary, if you have cross-border financial arrangements and debts in both countries, you may want to seek the advice of both a US and Canadian insolvency professional.
About J. Doug Hoyes
