Dubai: When leaving the UAE with un-cleared debts, one must cautiously ensure that one keeps track of any unpaid dues and settle them as quickly as possible to stay clear of adverse consequences.
Borrowers or debtors are legally and morally obliged to paying their debts to the lending institution, but during times of hardships, debt settlement can turn out to be the last option.
When a person in debt is unable to make payments due to financial instability there are still options available. They can reach out to their banks to find a common way out, which is an agreement on the repayment scheme. But let’s first walk through some frequently asked questions.
Can I repay my UAE loans after leaving the country?
If circumstances force you to leave the country and move back to your home country, should the fact that you have outstanding loans in the UAE stop you from repatriating?
Contrary to popular belief, UAE-based lawyers and legal consultants confirm that you are not obligated to pay off all your loans when exiting the country and those who are looking to return home have options for leaving whilst still in debt.
While owing debt may not be a process that stops at the border, keep in mind the repercussions of defaulting on your loans.
"As a borrower, you are not legally expected to live in the UAE while your loans are not yet fully paid," explained Abu Dhabi-based legal consultant Shamri Yousef. "Moreover, you are permitted to exit the country as long as no police cases or travel ban has been put against them. So, payments can be made while they are outside of the UAE."
"While owing debt may not be a process that stops at the border, keep in mind the repercussions of defaulting on your loans after leaving the country is a more serious and stressful affair compared to those defaulting while still in the country – and that can lead to you having a legal case lodged against you."
The reality is banks prefer to have clean balance sheets and want their customers to have a healthy credit report; therefore, it is very unlikely that banks refuse settlements as long as the debtor has a clean record.
What do UAE banks look at when settling unpaid debt?
If you are struggling with repayments of personal loans, education loans, etc., there are a list of factors that banks consider when settling bad debts in the UAE.
What is first factored in when settling loans is your ability to repay the loan or what is referred to as your ‘payment capacity’. Banks will also take into consideration changes in the personal circumstances of the borrower from the time he made the loan and his present financial state.
Other factors that will be considered in negotiation include your present salary, possibility of having a co-borrower or guarantor, history of any bounced cheques, assets in the UAE and/or home country, maintenance needs of the family, current residence - whether in the UAE or elsewhere, health and age.
Banks will consider your payment history, present earning capacity (as well as your spouse), flag if any case has been filed against you for bounced cheques
"Banks will also consider your payment history, present earning capacity (as well as your spouse), flag if any case has been filed against you for bounced cheques and any other personal circumstances. All these factors play an important role in the negotiation," noted Dubai-based lending and debt researcher Ramesh Nair.
"It’s crucial to note that banks will offer more leeway if you have a good payment history. You can even request for a suspension of payments for a couple of months."
On the legal side of things, your lawyer will also check if the lending institution followed the UAE Central Bank regulations when it granted your loans, did it loan you more than what you could pay - these are some of the questions that will be weighed.
Options like one-time settlements and long-term payment plans based on the repayment capacity of customers are explored, subject to the rules and regulations of the lending institutions.
Debt consolidation is dependent on the credit policies of the banks, which are getting stringent given the current market conditions.
Won’t the insurance company pay off my loan if I lose my job?
No, and it is a very common misconception a lot of borrowers have that the insurance company will pay for their loan during a dire situation. If it’s the insurance company that pays for your loan in the UAE then the insurance company will enforce the right of the financial institution to collect it from you.
Insurance companies will pay only the minimum amount due for a specified period. As per the law, terminations or resignations are not considered as a factor for coverage.
An important thing to remember is that you need to file your claim and it is not an automatic process, hence once you are repaying an outstanding debt it is your duty to contact the insurance provider and initiate the process.
It’s crucial to note that banks will offer more leeway if you have a good payment history. You can even request for a suspension of payments for a couple of months.
How can I repay my loans in the UAE, post repatriation?
As no one strategy fits all the cases, one should consider multiple available options like one-time settlements or long term payment plans based on repayment capacity.
The primary objective of banks is to provide a strategic repayment plan to enable their clients to become debt free. Banks are often supportive when it comes to understanding the issues that clients have been facing especially if the root cause is job instability, unexpected medical expenses, etc.
Getting involved in the repayment plan will help you repay your debts although there are some legal and financial repercussions associated with it. Debtors should be aware of the fact that banks are governed by guidelines imposed by the law. So it is always the judiciary that makes the final call.
"Contact the collections department of the bank you have a loan with and formally apply for settlement," added Nair. "With proper understanding about the various factors that are considered by the banks, mentioned above, you don’t need to worry about your debts, just finding a repayment plan that best suits you."
Analysis show that most settlements end up with the borrower paying back the principal amount to the bank, having the interests, penalties and surcharges waived.
However, there have been circumstances, when the negotiation reaches an impasse, which happens when a bank will not accept the offer of the debtor and the debtor is not in the position to take the bank’s offer.
It is in such instances, lawyers intervene and look at the reasonability of the offer, while aiming to balance the commercial interests of the bank and the civil rights of the borrowers. It is advised that you take the help of a UAE-based lawyer when facing such a predicament, right from the very beginning.