Picture the scene: you’ve just lost your job and you can’t find another one. You have a loan for your car, another for school fees, and one more for your year’s rent. Or you might have a much bigger mortgage for a property that is now in negative equity. What do you do?
Some people have concluded that their only option is to cut their losses, book a flight, accept that they are never coming back and leave without paying the debts. But is that the end of the story or the start of a much bigger problem?
Calum McClure is managing partner for Decol Debt Collections, a company with associated credit offices in 105 countries. Not surprisingly, business is booming. ‘The phone is red hot, it’s on a scale like never before,’ he says. ‘When you think about the amount of credit cards, personal loans, mortgages and auto loans out there, what we’re seeing now is just the tip of the iceberg. When you get house prices dropping by up to 50 per cent, who is going to cover that?’
He says new tools will be introduced that will make it far easier to trace individuals overseas. And with more and more money at stake, it won’t be a case of debtors ignoring a few toothless warning letters. ‘You’ll be on record and the laws of that country will be applied in order to reclaim the money,’ says McClure. ‘In some countries like Jordan, for example, you go to jail till you can pay, so you are really in trouble. But I will send that notice everywhere. German law doesn’t let you get away with anything. And if I need to find you, you’ll be found, unless you’ve got an awful lot of money and get plastic surgery in Brazil. I’ll hire private investigators. It’ll be a skeleton in your closet for the rest of your life.’
To avoid the worst, McClure suggests that people talk to their bank in advance. ‘Ultimately they would like their money back,’ he says, ‘so I suggest you talk about rescheduling your payment plan.’
Unfortunately that doesn’t always prove to be a simple procedure. Steven, an architect from the UK, moved to Dubai last October. He joined a respectable company where business seemed to be booming, but literally two weeks later, everything changed. ‘They shed about 20 per cent of their workforce overnight and I had to go as I was still on probation,’ he says.
It was the start of a night- mare that is still not resolved. ‘The week before I was made redundant, I took out a loan to cover a year’s rent on an apartment. My employers were obliged to tell the bank that I no longer worked for them, which they duly did. I went to see the bank to reassure them that I could make the first couple of payments while I looked for a job and they said that was fine and to keep them posted. Then the next day they froze my bank account without telling me.’
To make matters worse, the bank told Stephen he wasn’t allowed to leave the country for Christmas unless he had a guarantor in place for his loan – something which he said he would never expect a friend to do. ‘It was actually quite frightening – one minute I was treated like a valued customer, then suddenly I was made to feel like a criminal,’ he says. ‘You would imagine that as long as I could pay my instalments it would be OK. I told them that I had enough money to pay in January and February and that my partner would pay from then on when she arrived here, but they weren’t interested. You tell them, “I can’t eat, I can’t get to job interviews,” and they’re not interested.’
Steven’s situation hasn’t yet been resolved, though his partner is now in the country making the payments while he looks for work. His bank account is still frozen, however. ‘I like to think I have a responsible attitude,’ he says. ‘But paying a year’s rent upfront is a disaster waiting to happen. In other countries you have a get-out clause from your contract and all you lose is your deposit; here you have no recourse at all. I imagine that a lot of people will just get out of the country before their bank finds out what has happened to them.
However, Stephen Ballentine, a senior legal consultant for Galadari & Associates, warns against anyone contemplating a swift exit. ‘It’s not just a question of being blacklisted for credit in the future. Someone could commence proceedings in the country where you go and your assets might then be vulnerable.’ And Jim Delkousis, head of litigation and regulatory at DLA Piper Middle East, agrees that the debt-related problems won’t necessarily disappear the moment you board an outbound flight. ‘The question of whether your debts will follow you is a complicated one and certainly one that you should look at very carefully, as well as take advice on. There are circumstances in which they could make life very difficult for you.’