Don't run away from your debts in UAE: experts

If you have a bank loan and you lost your job, what would you do: Flee or pay?

Some may think of packing their bags and fleeing to their home country or to other countries, where the cost of living is relatively lower and the UAE debt collectors cannot chase them.

Others may resort to extreme 'solutions' like the recent Khaleej Times report of an Indian expat who threatened that he would commit suicide after being burdened with a loan and having lost his job. The Dubai Police, after being alerted by KT, immediately swung into action and the plan was averted.

This brings us to the point that there are rational and feasible options to settle debts, even if you thought that hope is lost.

Fleeing is very risky and even if debtors flee, they will find their loan balance has only grown while they were gone because of compound interest, collection charges and late fees. Plus there will be endless calls from collection agencies, who have offices or subsidiaries around the world.

Lawyer Barney Almazar, a veteran financial and legal adviser who is also a director at the corporate-commercial department of Gulf Law in the Middle East, the Philippines and UK, has shared the following advice if you have a big loan and you lost your job:

. First check your loan agreement for insurance. If the cause of termination of employment is involuntary, your insurance will cover the minimum monthly payments for several months (depending on the policy) or until you get a new job, whichever comes first.

There are those who think that since they are paying for their loan/card insurance, they will not be required to pay the bank when they lose their job. This is wrong because the insurance will only pay the minimum payment due for a certain period of time and if the cause of termination is not voluntary on the part of the debtor (so resignation will not be considered covered).

Those terminated due to company closure or redundancy (qualified for insurance) must notify their bank/insurance to process the claim. It is not an automatic process as the insurance would not know that you lost your job if you will not inform them (sadly, many think that once they stop payment, insurance will automatically kick in).

. Going back to your home country or relocating to another country does not mean you are running away from your obligation. You can still arrange payments with your bank even if you are no longer in the UAE. Sometimes, it is even easier to negotiate with the bank if you have a better paying capacity elsewhere. The crucial thing here is to keep the bank updated of your whereabouts and show your good intention to repay.

. If you got a new job with lesser salary, you have to settle loans with high interest rates first (such as credit cards) or convert them to a term loan.

You may also negotiate to extend the term of your loan, so the monthly amortisation will become lower. A family member may also become your co-borrower so your loan terms can be more flexible.

. If you have a car loan, you can sell the car and downgrade. The buyer can assume the remaining loan payments. Many fall on the wrong notion that upon surrendering the car, the loan will be cancelled. This is not the case. If the value of the car is less than what you owe the bank (which is the usual case) you are still liable to pay the balance.

According to Almazar, banks will also consider your payment history, earning capacity, current location (inside or outside the country), whether a case had been filed against you for bounced cheques, available assets, age, health and other personal circumstances. All these factors play an important role in the negotiation.

Legal consultants also scrutinise whether the bank has followed the UAE Central Bank regulations when it granted a loan. If the bank has loaned more than the customer can pay, it can be held liable.

Almazar said: "I have not encountered a situation where the bank refused any form of settlement. Even for those with existing cases, banks will still settle. However, there are instances where the negotiation will come to an impasse when the bank doesn't accept the offer of the debtor or the debtor is not in the position to take the bank's offer. In this situation, we recommend the intervention of the Central Bank where the debtor can ask for its assistance.

"Banks will welcome settlements made in good faith. Banks are not in the business of putting people behind bars. Talk to your bank or credit card company, keep an open dialogue and try to reach an agreed payment plan you can manage," he added.

What the law does if a cheque is bounced

What will happen if your cheque bounces in the UAE or you default from paying your loan? A criminal and civil case will be filed against you. But the criminal and civil courts function separately.

According to Abdul Moneim Bin Suwaidan, an Emirati lawyer at Bin Suwaidan Firm for Advocates and Legal Consultants, the difference between the civil lawsuits and the criminal cases is wide.

"The civil lawsuits have laws, procedures, courts and judges independent from the criminal cases. The criminal cases are subject to the penal codes and always start at the police stations. Complaints and reports are lodged there and then referred to the public prosecution, from where the cases proceed to criminal trials," Bin Suwaidan said.

He pointed out that the civil lawsuits are claims ensuing from contracts and investments; civil and commercial laws apply thereto. Those cases are directly registered at courts.

"Signing and issuing a bounced cheque is a crime which bears a penalty of a jail term or a fine, as per the Penal Code. If the defendant pays up the cheque amount or reaches a settlement with the complainant, the criminal case is closed. A reconciliation or settlement between the two parties cancels the penalty and the convict walks out of jail."

Bin Suwaidan concluded that a complainant can seek to file a civil lawsuit to claim the cheque amount from a person even when the latter just walked out of jail after serving his term. This means that the criminal penalty does not spare a person from paying his financial liabilities. If the parties are traders, then the Law of Commercial Dealings shall apply.