I have been living abroad for five years and will do so for the
conceivable future, though I may want to return to the States in the
future. I have an approximately Seven Thousand Dollar student loan
owed to the Federal Goverment and owe around Seven Thousand Dollars to
various credit card companies.  My questions are as follows:

What are the consequences of defaulting on a student loan held by the
goverment, if living abroad?  Since they can not garnish wages and I
own nothing of value in the United States what will be the
repercussions?  Can they touch my inheritance when my grandparents
pass away as they have set aside 30,000 dollars for each of their
grandchildren in their will, or when other family members pass away.

My second question is what will occur if I transfer my balances on all
of my credit cards to my three cards with the highest credit lines and
default on those cards, will the remaining five cards that I possess
by cancelled as well due to defaulting on the other cards, some cards
are issued by the same company while others are not, so would also
like to know both whether the cards issued by the same bank will all
be cancelled despite not having balances and my account being current,
in addtion to unrelated cards being cancelled once I go into default
even though my account is current with the unrelated cards.

My final question is since I am outside of the country and would not
appear for a court date is sued, can a arrest warrant be issued for
me, for any reason such as not appearing at court because when i do
renter the country to visit family, etc. I would be concerned about
getting picked up at immigration because of the warrant or failing to
appear for a supeona.

For all questions please keep in mind would not owe more than $5,000
to any credit card company, so would like to know if they would chase
me to severe lengths for that amount.

One last question that just occured to me, while I most likely won't
do this since it is very unmoral but would like to know if any
addtional problems will occur if I run up the balances of the credit
card in a short time period before defaulting on them

All the information above is purely to aid in my descion making
process on how to proceede with this issue so an honest objective
answer would be most appreciated.

Thank you

Hi robert78,

"What are the consequences of defaulting on a student loan held by the
goverment, if living abroad?  Since they can not garnish wages and I
own nothing of value in the United States what will be the
repercussions?"

If you ever wanted to move back to America, you should know that there
is no statute of limitations for collection of student loans.

 
http://www.ed.gov/offices/OSFAP/DCS/faqs.html
"By virtue of section 484A(a) of the Higher Education Act, statute of
limitations of no kind now limits Department?s or the guaranty
agency's ability to file suit, enforce judgments, initiate offsets, or
other actions, to collect a defaulted student loan. Regardless of the
age of the debt, statutes of limitation are no longer valid defenses
against repayment of a student loan."

The loaner sells the loan to a guaranty agency, which then owns the
loan and will use all manner of methods to find you. They can use wage
garnishment, seize your federal tax refund, and the like. Now, they
might not be able to garnish your wages from a foreign company, but if
you work for an American-based company or ever do, they can. American
citizens are also liable for paying income tax on any earnings
anywhere in the world; this is usually offset by deductions given for
taxes paid in a foreign country. But if any refund is due to you, that
would be taken for the student loan debt. You would also, of course,
have to pay taxes on that $30,000 from your grandmother and so any
refund you have that year could certainly be taken for the debt, and
if the guaranty agency files suit against you and a judgement is
rendered against you, that $30,000 would be taken at that time. Since
you will have to pay taxes legally on this inheritance, it would have
to be declared and it certainly could be taken away from you.

Defaulting on the loan would result in a negative reporting to your
credit report, which would stay for seven years after the loan is paid
off. If it is never paid, it would remain on your credit report
indefinitely. That, and especially in addition to defaulting on your
credit cards in addition would give you a terrible credit score and
you probably would not qualify for a loan or any other line of credit
in the foreseeable future. Many landlords and regular bank accounts
conduct credit checks, so you might have more problems than you would
think of due to this.

You will probably also be turned over to a collection agency, who
might drive you insane contacting you over and over again until you
pay the debt.

In addition, your college could refuse to release your academic
transcript to you until the default is satisfied. There is no federal
law that requires them to do this, and not all schools do, but the
transcript is their private property and if they deem that you have
not paid for your education as you agreed they may refuse to give you
copies. If you ever apply to any type of graduate school or
professional school abroad, they will probably want official
transcripts of your college work.

This probably goes without saying, but if you default on a student
loan and don't pay it back, you won't be eligible for any student
loans from the government for any future schooling.

In addition, after defaulting you would be liable for any and all
collection fees that are associated with your debt-- since you live
abroad and it might not be as easy to find you or communicate with
you, these could be steep. These can amount to 25 percent of the
amount of the student loan. If a lawsuit is brought against you, you
will most likely pay for those proceedings as well when the judgement
is rendered against you. If your grandparents' inheritance is
garnished due to this, the lawsuit costs would also be added on at
that time.

Finally, your account could be turned over to the federal Department
of Education for collection, and they could file a federal lawsuit
against you.  This would most likely also result in much of your
inheritance being taken away.

Department of Education on collection costs
http://www.ed.gov/offices/OSFAP/DCS/collection.costs.html

As you surmise, credit card companies could indeed cancel your cards
and not give you credit after you default on the other cards. In fact,
they could cancel your cards or raise your interest just on the fact
that you defaulted on your student loans, through a clause called the
"Universal default" clause. Read the fine print in your agreement to
see if your cards have this clause in effect.

Utility Consumers' Action Network
http://www.ucan.org/members/ucanmembersonly/watchdog/2005/Spring2005page1a.html

"'Universal default' is one of the nastier "gotchas" devised by credit
card companies. It is a clause buried in the credit card?s terms and
conditions. It states that if you are late for ANY payment with ANY
creditor, that the credit card company can treat you as if you are in
default. That?s right ? if you are late in paying your rent or your
phone bill, they can cancel your credit card ? or, in some cases,
raise the interest rate on your   outstanding balance to 29% or more."

Washington Post Blog
"Faulting Universal Default"
http://blog.washingtonpost.com/thecheckout/2006/07/faulting_universal_default.html

"Under universal default, a credit-card company monitors the credit
histories of its customers, even those who are current in their
monthly payments. If a customer is late paying another creditor (such
as another credit card company or utility)-- or has taken on so much
debt that his or her credit score drops -- the credit card company
automatically raises that customer's interest rate on existing and
future balances. Default interest rates can be as high as 35 percent;
most are around 30 percent."


As far as being arrested upon re-entry, I find this possibility
unlikely. Bench warrants are usually only executed when a defendant
has failed to appear in court on a criminal case, not civil. However,
if you don't appear for the civil trials against you, you will
probably automatically be found at fault and liable for the judgments.
If, however, the plaintiff did subpoena you to the case, and you
didn't appear, theat could be grounds for a warrant being issued for
your arrest, in which case you would have problems at immigration. You
would also have to check individual laws for your state.

Now, would the credit card companies go to the trouble of suing you?
If you ran up your debts to the limits and then disappeared, I believe
they would not hesitate to sue you, and you would not see any of your
inheritance. If you only had $5,000 of debt, they still might sue you
in small claims court.

Credit Card Debt on about.com
http://credit.about.com/od/fastfactsfaqs/f/suedoverdebt.htm

"The biggest consideration that goes into the determination of whthet
you will be sued to collect your credit card debt boils down to how
much you owe vs. how much it will cost to sue you in court to collect.
If your debt is small enough that it would cost more to sue you to
collect, you're just not likely to be sued. This doesn't mean you
shouldn't pay your debts and take the gamble that you won't be sued;
it does mean that the creditor is more likley to work with you to get
the debt paid off rather than just going straight to court."

Basically, if it costs less than $5,000 to sue you, they will probably
try to sue you-- and then Grandma and Grandpa's inheritance will be
taken as a judgment.



My advice:

Stop buying things you don't need, especially on credit. When you
really think about it, there probably isn't much you need but more
things you simply want. Save what you don't spend. Slowly pay off your
bills. All these organizations want to prevent you from going into
default, and they are willing to work with you on payment plans and
schedules or if you're disabled for any reason. You do NOT want to do
this. It will cause many, many problems for you in addition to being
unethical. You don't want to get yourself into a situaton where you
can't use any kind of credit for anything, especially upon your return
to the United States, where that is especially important.


Sources:
http://www.tgslc.org/students/omb1.cfm#unable%20to%20pay

North Carolina State Education Assistance Authority
http://www.ncseaa.edu/pdf/aversion.pdf#search=%22student%20loan%20default%20lawsuit%22

Virginia Information on Civil and Criminal Courts
http://www.courts.state.va.us/gdc/gdc.htm

Search terms: 
student loan default
student loan default lawsuit
credit card default cancel company
universal default student loan
credit card sue debts


If you need any additional help or clarification, let me know and I'll
be glad to help.

Cheers,
--keystroke-ga