Posted on: 19 October 2016
If you have made a loan to a family member or friend and they have failed to pay it back, you may be considering ways you can compel them to pay it back. If informal and polite requests for repayment have failed, you may be thinking of using a debt collector to recover the money. Below are some things you should consider before you call in the debt collectors.
Is there a loan agreement?
Debt collectors can only recover money when there is a properly worded loan agreement in place, and it is clear that the other party has broken the terms of this agreement. The loan agreement should list the value of the loan, the rate at which it must be repaid, and details of any interest that is due.
If you have loaned money without drafting a loan agreement which sets out the terms of the loan and its repayment, you may find it difficult to retrieve the money using debt collectors. This is because it is possible that the person you lent the money to will argue that it was a gift and that they are not obliged to repay it.
If there isn't a loan agreement in place, you may be able to attempt to recover the money via the small claims court. However, if the loan is for a relatively small amount of money, your legal cost may be greater than the value of the loan.
How will using a debt collector impact your relationship with the other party?
If a close friend or family member owes you money and you choose to use a debt collector to recover it, it may cause a schism within the family. Before starting formal legal action against a friend or family member, you should attempt to reach an informal agreement with them in order to get them to return the money. It may be possible to agree on new terms for the loan, which gives the other party more time to repay it or to lower the interest rate on the loan. If you do agree on new terms, it is vital that you draw up a legal document outlining them.
If you would like further information and advice about using a debt collector and the legal processes involved in the recovery of loans, contact a lawyer today. The lawyer will be able to assess your case and offer further help and advice on how best to proceed.Share