Your brother asked you to cover his rent for a few months while he was between jobs. Or maybe you loaned a friend a few hundred dollars for a car repair he couldn’t afford.
You would do anything to help those you love. And you did. But what if they don’t refund you? Consider these options.
Bring up the subject gently
Asking a friend or family member to pay you back can be uncomfortable. But sometimes, a simple reminder is enough to restart the repayment of the debt.
Before you reach out, think back to the discussions you had when you offered the money: did you make it clear that it was a loan and not a gift? Have you confirmed payment terms and a deadline? Did you get the details in writing?
Framing the conversation around facts rather than your feelings or unspoken opinions can avoid confusion. Regardless of the context, approach the issue calmly (and privately) and avoid making assumptions. Using harsh or accusatory language can not only strain the relationship, but also make your loved one less likely to pay.
“What we need to do is create space for that person to move out of a shameful mindset and perspective and become less avoidant to engage in healthy conversation,” says Michael Thomas Jr. , a licensed financial advisor who teaches at the University of Georgia’s Financial Planning Program.
Acknowledge what is going on in your loved one’s life and be candid about your own situation. Then you can discuss how to move forward. “I think the best approach is to just come at it with a lot of empathy and understand that you’re both in this together,” says Thomas Nitzsche, director of media and brand at Money Management International, a non-profit financial education and counseling service. .
Establish or review a payment plan
Ideally, before lending them money, you would have a loan agreement outlining how much the borrower owes, how they will pay, when payment is due, and what to do if they cannot pay.
If not, or if the person cannot meet the original conditions, develop a new plan. Consider extending their deadline or allowing them to make smaller payments. Thomas says setting up automated payments through a peer-to-peer platform can make repayment easier over time.
A traditional payment plan is not the only option. Perhaps your friend or relative could nibble away at the balance by periodically covering one of your bills, Nitzsche says, or paying for a meal.
If your loved one is having trouble finding money, they may be able to repay you with a favor. “Let’s say the lender needs to paint a family room or install new faucets. A borrower with those skills might be happy to pay off their debt,” attorney Cara O’Neill, a legal writer at Nolo, a self-help legal website, said in an email.
forgive the debt
Finding an arrangement can be stressful, especially if your loved one doesn’t show up. Debt cancellation might be the best solution for your peace of mind and your relationship. However, you might consider giving the money back to that person, or anyone else, unless you are prepared to lose the amount. Think carefully about the impact forgiveness would have on you.
Thomas suggests asking yourself, “If I don’t get this money back, it’s not just how I’ll feel, but how will it affect my financial goals or whatever I’ve planned to do with these resources. ?”
Take legal action as a last resort
Thomas does not advocate suing friends or family in most cases. But this path could be worth exploring “if there are large sums of money on the table and there is a person who you have reason to believe has the ability to pay” , said Thomas.
It’s also important to have evidence on your side. You’ll have an easier time proving the case if you have a written contract, O’Neill said. If you think you have a chance, there are several ways to go about it.
“The fastest and cheapest way to get a financial judgment is through the small claims court system,” O’Neill said. “The judge resolves small court cases in a single appearance, and the filing and service fee for the court case usually costs less than $200.”
If the loan amount exceeds the small claims limit — typically $5,000 to $10,000, depending on the state — the case will take significantly longer and cost more, O’Neill said. “The filing fees will be higher and the lender may need to retain a lawyer as the traditional court system is more difficult to navigate without a lawyer.”
Even if you get a judgment in your favor, that doesn’t mean you’ll get your money back, says Nitzsche, “especially if the person who got the judgment against them has certain types of protected income, like disability or social Security”. . It creates an extra wrinkle because you can’t get wage garnishment.
If you go this route, be prepared to burn bridges. Will it be worth it if you get your money back? Will it be worth it if you don’t?