In my last article, Why You Should Never Loan Money (unless you don’t want it back) I talked about what can go wrong when you lend money to friends and family and why you shouldn’t do it. But what if you’ve already lent the money… now what?
First things first, don’t panic! All may not be lost. Some people will in fact, repay the money they have borrowed, but if time is ticking by and things aren’t looking good, you might need to take action.
Talk to the Borrower
You lent money to this person so presumably you have a close relationship or at least are comfortable enough with them to have a chat. There’s no need to get nasty at this stage, in fact that will usually just make things worse. Just ask if they’ve given any thought to how they might repay you for that loan. If they’re receptive to this, you might like to suggest putting an agreement in writing.
Write to the Borrower
If the borrower wasn’t compliant at stage one or hasn’t repaid when they said they would, you need to seriously start thinking about getting yourself some evidence. Whether or not you choose to go down a legal avenue in the future, this is powerful stuff to have.
In today’s modern age, everyone is writing to each other without a second’s thought (just look at some of the rubbish on Twitter!). Try sending a casually worded email, text or even a Facebook message (preferably private, most people won’t admit much if it’s posted on their wall!). You’re trying to get the borrower to agree that a loan agreement existed. If worse comes to worst and you need to go to court, you can use their admission will prove you had a contract.
Plus, in some states, agreeing that you owe money and that you will pay it back actually re-commences the statute of limitations! Say for example, you have three years to commence a claim but your time’s nearly up, but the borrower promises in writing to repay you. You get another whole three years from the date of that admission to start your claim!
Gather Your Evidence
If you’re getting nowhere negotiating, you need to look at what proof you have of the transaction taking place. Have you got a bank statement showing a transfer or a large withdrawal of cash? Any notes, agreements or receipts? Print off any emails, and write down any conversations that occurred with dates and times.
Now back-up, print, save or even photograph your documents. Seriously. Data can easily be lost if your hard drive crashes or you drop your phone in the toilet (don’t laugh, I’ve done it!) so always make sure you have multiple copies of any information. If you don’t know how to copy messages off your phone, try photographing the screen or even writing them out in a book like a little script. Don’t worry if you’re not sure whether it’s good enough or not, anything is better than nothing!
Get (Free) Legal Advice
Many people think you should only consult a lawyer if you want to use their services. Not so. Getting legal advice can put you in the position of knowing your rights. You can choose to act on them or ignore them, but if you don’t even know what they are, you’re significantly disempowered.
Now there’s no need to go spending money just yet, all you need to know is a few things.
Questions you need to ask are:
What is the time limit for taking action in this matter? (Laws will differ for state to state)
If I took this to court, which court would I be going to? (A very small loan, for instance, might go to minor claims, but a bigger one to magistrate’s court)
What court fees would be involved in pursuing this?
Do I have enough evidence/ strong enough evidence to be successful?
Am I eligible for any kind of legal aid assistance in this matter?
Work Out What You Want To Do
This is probably the hardest part of the whole uncomfortable situation, figuring out what you want to do. If you’ve lent money to a close friend or family member, you might not want to damage the relationship and rest assured, taking someone to court is pretty irreparable damage. Of course, if they’ve borrowed a substantial enough sum of money for you to even be thinking about it (and haven’t paid it back) the relationship may already be beyond saving.
You also need to consider the financial and emotional costs of pursuing a debt legally. Legal fees aren’t the only cost you face if you take a matter to court, you will also need to take time off work to prepare and attend and of course, all of this may be very stressful. You will either need to hire a lawyer which in many cases will exceed the value of the debt, or you will be self-represented which can be quite nerve wracking. Court matters can take a long time too. Sometimes a decision can be reached within the space of an hour, but some cases go on for much longer. Even minor matters may require multiple hearings to be resolved and they can end up being weeks, even months apart. Don’t start something you’re not willing to finish.
Have a good think about how much money is involved, what you really want and what you’re actually willing to do to get it.
Work Out What You Can Actually Get
The saying goes, you can’t get blood from a stone and it rings true even today. You can sue somebody and win but if all they have is the shirt on their back and their welfare payments, you’re not going to get your money back. Do a little bit of sleuthing (legally, please!) and find out if they have a job or a nice car. If the person you’re after doesn’t own a penny, don’t waste your time trying to turn out their pockets.
Write A Letter
Now that you know where you stand and what you want, you can make your demands. Put your position in a letter, on paper, and send it the old fashioned way. For some reason, people tend to take snail mail more seriously.
Here are a few things your letter needs to say that:
- there was an agreement to lend and repay money (describe whatever your agreement was) and that this constitutes a legally binding contract;
- date of that contract;
- you have evidence to prove your position (only if you do!);
- they haven’t yet repaid you; and
- you have had legal advice;
- you are willing to take the matter to court where you expect to be successful and they will be forced to pay not only what they already owe you, but also court costs.
Keep a copy and send it registered mail, keeping the postage records too, lest they claim you never sent a letter (you would not believe how often people try this!).
Have A Lawyer Write A Letter
Depending how much money is involved, it might be worth getting a lawyer to write a letter for you. Getting a letter from a lawyer with their firm’s letterhead printed on the stationery will send anyone’s pulse racing and it might just be enough to frighten your borrower into action.
Court… Or Not?
I hope not too many of you have to get to this stage but I know it does happen. If you’ve gone through all of this and your borrower still hasn’t coughed up, you’re left with limited options. Ultimately, you can take the matter to court, wait for a more opportune time to do so, or you can just write the loss off and chalk it up to experience.
If you haven’t got that legal advice, go get it now, you need to give yourself the best chance of winning. God speed, good luck and for goodness’ sake, don’t ever lend money again unless you don’t really want it back.