When someone owes you money, you can quickly find yourself in the personal debt collection business even though you don’t want to be. There are so many companies out there helping people escape their responsibilities. I figured it was time to help you make sure nobody skips out. After all…you loaned money to somebody – they promised to pay you back. You lived up to your side of the bargain – they didn’t.
Before trying anything else, offer them a debt payment plan. If that doesn’t work, take these steps to start collecting money you are owed:
1. Understand the dynamics.
The person who owes you money has broken his/her word. They’ve broken a boundary – not you. Don’t worry about being nice. Don’t worry about what they think or say about you. The facts are that you did someone a favor and they’ve taking advantage of you. Get a little angry and stay that way. You are no longer friends and nothing you or they do from this point on is going to change that.
2. Remind them about the debt.
Remind them of the circumstances. They asked about borrowing money…not you. They asked for a loan and you gave it to them. Remind them what they promised to do. Be specific about amounts and dates.
Ask if you have it right or if you’ve made any mistakes about the date, the amount or the promise. One of three things will happen:
A. They’ll pay you right then and there – this happens about as often as politicians live up to their promises, so don’t hold your breath.
B. They’ll agree and recommit to pay you. In this case, get them to sign a letter of understanding.
C. They’ll use their selective memory skills to reconstruct the arrangement. They’ll say you gave them a gift or made an investment or whatever. They might even start being rude to you.
If that’s the case, don’t confront them. Just let them know that they are responsible to pay you and you are going to collect. Don’t give them a chance to respond. End contact at that point.
3. Send a letter.
Write a letter recounting the date of the loan, the amount borrowed and any other facts regarding the transaction. This should include the repayment terms that the debtor promised to make.
In this letter, you should demand that the person who owes you the money live up to their promises. Tell them how much you expect to be paid and when.
Whatever you do, don’t get emotional. If you want to talk about your feelings, tell a friend or a therapist. The time for warm and fuzzy talk is over with this person. The letter should be cold and dry. The facts…just the facts. Be brief and very specific.
Send this as a certified letter and demand a response within 10 days of receipt.
4. Call in the big guns.
If your deadbeat former friend doesn’t respond favorably by the time you stipulated, it’s time to call out the artillery. Call a local lawyer and get them to give you a quote for sending your “friend” a letter. Give the letter you already sent to your attorney and make sure the lawyer rewrites it in her own words.
Make sure the lawyer sends the letter certified and gives you a copy. Before you hire the attorney, get a firm price quote. Make sure the time and expense is worth it. As a rule of thumb, the expense should be less than half the amount you want to collect.
5. Make sure the lawyer’s letter goes out.
The letter must demand payment with a specific amount and date. If you don’t receive the payment, send a copy of the lawyer’s letter again. Like the first, send this letter certified.
6. Go to court.
If the deadbeat doesn’t pony up by this time, go to court and file a small claim. You may be able to recoup your costs – ask the attendant at the court.
If the person who owes you money isn’t a complete dunce, he’ll see that you are serious about collecting the money you are owed and make a good effort to pay up.
Just by seeing how organized and committed you are, he may get his act together.
The one last step you might consider is working with a collection agency. I haven’t ever had this experience, but I bet it would work pretty well.
BONUS TIP
Next time somebody comes to you looking for a loan, send them to a p-2-p lending group like Lending Club.
Have you ever gone through a process like this? Have you ever collected on a personal loan from a “friend”? How did you do it? Was the friendship able to survive?
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{ 24 comments… read them below or add one }
Hey Neal, I really need your advice. I’m a former college student who quit the university on my second year when I got dismissed, and went to pursue something different. I didn’t apply for health insurance, or lived in the housing when I left, yet they still charge me for student service fee, housing fee, health insurance fee and campus based fee, and it’s total up to 7k. I already canceled my housing when I left but they didn’t notify me that I have to write a letter to remove me from the contract. I don’t if they still charge me for the terms when I wasn’t living there. They’re just trying to make money off of me, do you think it’s wrong for them to do this even though I didn’t use these? They even referred to the collection agency to force me, but I got nothing. I don’t even want to pay for that crap that I didn’t apply for. Mark what is your advice? What can I do to drop this? Have you ever been in this situation?
Dave,
You have to prove to them that you notified them of your status change. If you can not prove that you gave them written notice, you will have your work cut out for you. I would simply go talk to the housing department. Be nice. Never display anger. Politely ask to speak to the manager and work your way up to each higher level at the school until you get to the Dean. I am sure they will want to be fair. Let me know how it goes.
Mr. Neal, I find myself in a situation that pertains to what you have broken down on this page. I lent a friend a total of $2000 so that he could further pursue a business venture of his. This was done in a personal manner and was no way an investment through his company. He needed the capital and I lent it to him on a personal level. I had him e-mail me a contract stating the amount and the said due date for my money to be returned to me. It has been several months now past this date. He has made several promissory dates based on certain monies that were to be coming to him that he would then pay me back on those dates. Contact on his end has decreased and I have not heard from for over a week now. I have several e-mails and text messages along with the wire transfer receipts for the money that I sent him regarding this matter. Seeing how the non formal way of handling this manner is not working, what do you suggest I do from here? Do I have enough backing on my end to take it to court? Any advice would be greatly appreciated.
P.S.- There was to be interest paid on this money as well and is that something that I should not concentrate on? Or just worry about the principle amount?
I am not an attorney but I believe you have enough to go to small claims court. I would ask for principal PLUS interest. Read this on small claims court.
These are excellent ideas on collecting debts, Neal. I’m happy to read that it is easy (relatively speaking of course) to collect debts in the US. In Malaysia where I live, it takes forever and a day to do so even when you go to court.
As a result, I came up with the perfect loan plan – do not lend money! Firstly, it’s not your job to lend money. Secondly, if you really want to help, just give, don’t lend.
By treating the money as a gift, it’ll save you from the burden of getting the money back and your friend from trying to find the money to repay you. Of course, you only give what you can afford, and not necessarily what he is asking for. The bonus of doing this is that both of you will remain as friends.
I have a car loan out to my sons roommate- he sold the car and took my loan money for the car and spent most of it on his credit card bills ect… Stating he did not know it was to be repaid when he sold the car. He lives in Arizona, I live in Minnesota. If I went to small claims court what state do I file in? Mn and Az have different limits for small claims. My son and he are no longer roommates. Give me some advise on how to handle this. Thanks
i get a kick out of all the sites that tell delinquents how to avoid collection and how to charge the collector with harassment . this makes me sick ! Pay ur bills and this wouldn’t happen . I personally have given up on collecting all the personal loans owed to me AND will spend my $ on revenge . I will drive them completely nuts without them knowing where it is coming from . SO if u owe me $ u will wish a collection agency was handling this when i am done . good luck losers
This was an excellent article to read, I felt very empowered by it. Sadly this has happened to my “emotional” behind twice already by (2) different friends, both named Michael…oddly enough. One owes me $200 from (2) years ago and one owes me $455.00 going on (6) months now. The latter I had sign a promissory note that listed his truck as collateral should he be unable to pay me back. That note was also notarized.
I have a question in regards to the $200 loan that is owed to me. He lives in Tampa, FL now. When I loaned him the money we were both living in Palm Beach County, FL. Two years later and he still lives in Tampa and I live in Colorado Springs, CO.
Where should I find an attorney to write the letter for me, which city is best to do this from?
Any help you can give me would be greatly appreciated. I am sending a copy to your FaceBook as well.
Thanks again for all your informative tools, you’ve given me the boost I need to stop playing Mr. Nice Guy and get my money back.
warm regards
Armando Diaz
Armand. Thanks for your kind words and sharing your story. I am sorry that your friends let you down. That sucks. I like that you are going to stop playing Mr Nice guy. I would have a policy of no more loans to friends. Have them go to others or even turn to Lending Club. But to your question – I fear that the cost of having a letter written by an attorney would be more than the possible return you will get if your friends pay up. This strategy works but I think it works better with larger amounts. Still, you can try to contact Legalzoom.com . Either way, don’t despair. If you learn the lesson and don’t fall for this trap again it will be worth far more to you than the $200. On the note that is collateralize with the truck, have you placed a lien on the car?
Neal! Thanks for the prompt response! Really made my day. To answer your question… NO I have not placed a lien on his truck. The truck was a gift to him from his grandfather. To be honest I think he’s driving around in it with fake plates and no insurance. I’m not even sure he has transferred the title over and I do know for sure he doesn’t have any insurance on it. He carries around this personal injury insurance for himself. That’s all I know. The truck is a 1994 Dodge.
hi Neal, I need help, my friend got arrested Feb 2012, and just got out on Oct. 2012. when he in jail, I was the one pay for his lawyer fees and book money also storage fees. but the problems there is not paper agreement between us due to he is in jail. Now after he is out, he just did not mention anything about to pay back. also we got in to big arugement, which will not going to talk in person anymore. but most of the fees mentioned above is from my credit card, but some are cash. will you think is okay for me to file a claim base on what I have in hand? what should I do? please help!!!
Kat, I am sorry to hear about this. It may be possible to use Small Claims Court. I personally would not waste much time other than using Small Claims. I do not think it would be wise to simply take what he has in storage. Also, consider if you really want to have any business with this person. You might want to just cut your losses and move on.
also, I do still have his storage key, do you think if I just go to his storage and get whatever to secure if he doesn’t pay me back. will that illegal? will I be in trouble for that?
I wish I had the problems of the folks above. $1,000 here – $2,000 there. I sold my business and the buyer took a personal loan from me to do it. She ended up just walking away – owing me $50,000 and leaving me with her rent and bills. I need the “right” collection agency for this – that’s what I’m trying to find.
Hello Neal. My husband and I find ourselves with financial difficulty due to his disability. I loaned a “friend” $3000 about 8 years ago, which she promised to repay within 60 days. After she cashed the check, all contact stopped. I know she also suckered many others into loaning her money at that time. I just learned she spent time in jail in 2012 for writing bad checks close to $10K, and must make restitution. I am angry now that she only got worse with her spending habits and screwed a lot of people. I want my money. She nor her husband will answer phone calls or respond to letters. What is the best way to pursue this? She is in PA and we are in ME, otherwise I’d be knocking down her door. I know my chances are slim, but just the thought of her looking over her shoulder thinking I am pursuing this may give me satisfaction. Can I at least put a lien on her property or something? Maybe someday they will sell their home and I will have that judgment. Whaddya think? Thanks.
Jillybean, I am sorry that your kindness has been repaid with such terrible behavior. The best situation would be for you to walk away and move on if possible. You can pursue it but you will incur more costs and frustration. And you still may not get anything in return.
If you want to pursue it you can look into suing in small claims court but I don’t know how that is done if you are in another state. This
Thank you Neal, figured it was a lost cause. I will write her husband one more time now that I know she was in jail and perhaps he will be shamed into paying up, but he let her sit in jail without bailing her out, so probably won’t happen. We were tight friends once, maybe he will have mercy. Thanks again, and will let you know if any progress or response happens.
I’ve had to go thru this myself a time or two. My experience is that I’ve already lost the money – why lose my serenity too? I am sorry this happened but I suggest you not loan to friends again – ever again – unless you can afford to lose it. That’s been my strategy.
Keep me in the loop and good luck…
Hi Neal,
I was dating/slash helping out a guy for about 5 1/2 months. I paid for his airfare to move from FL to NY, he stayed at my house for that duration. He did not have much clothes, so I purchased him new clothes (on credit), particulary for job interviews and work clothes. There were other expenses such as phone bills and other utilitiy expenses, and in total everything added up to over $3,000. He verbally agreed to pay me back when he started working out of his first paycheck. He only had his 1st job for two weeks, but he gave me $300. I have a banking statement where I made a deposit of $300.00 he gave me out of his first paycheck that went towards him paying me back, but he fradulently took my debit card,withdrew the money from a local ATM machine (which I also have documented on my banking statement). Unfortunately I only have a contract that he signed for a smaller portion of the amount owed at $465. He refuses to sign any other additional contracts for the total amount owed. I have receipts that back up my claims in total. Also I plan to obtain a notorized letter from my mom (as landlord of the house) that the guy was living there while I was paying rent and utilities. I was wondering if I have a case with the receipts for the expenses incurred, as well as obtaining a notrized letter?
Charlene, Sorry you had that experience. You may have a case but you don’t want to waste time and money on this because the amount is relatively small. Check out this post on using Small Claims court to collect money owed and see if it helps. Then, chalk it up to experience and never mix love and money again my friend! Best of luck!
hi neal i had a room mate ( my cousins wife he had passed away rented a 2 bedroom & split bills. she was always late with her 1/2 rent bills but thats not the problem. she made charges on 4 of my credit cards for $5000.00
i took her to small claims court & won the case in may but she still has not made any payments. can i sue her again for all the interest & late fees (35$ a month per card ) it totols over 5 grand. now i find out her wealthy motherassed away ( s telling people not to tell me ) causees been running from me she is to inheret 1/3 of 1.3 million w do i get my money please help thank you happy thanksgiving
I will have to research this – which I will – and then write a post about it. But I do know from my own experience if you have a judgement and the other party doesn’t comply you should be able to place a lien on the property. As I said, stay tuned. I w/look into this…..
Hello,
I loaned a friend in the military 1762.5o, which he refuses to pay me back. I have notifies his Commanding officer and now he has been calling and texting me saying that his job wants a signature and notification that he owes me the money. I’ve kept all the text messages of him saying he will pay me back and copies of the money grams that were sent to him. Will that be enough??
Linda. I think it should be but it will depend on the person’s CO.