There have been many times that I have consulted with clients who have lent money to family and friends (or their former significant other) and are now trying to collect. Unfortunately, there is often no writing to memorialize the loan and, even if there is, it doesn't set forth payment terms or define breach.
So, if you are thinking about lending money to friends, family, or significant others, please consider the following, so you won't have a problem later, should you have to collect.
Get It In Writing!
First and foremost, get it in writing! Set forth how much money is being lent, what the interest rate is (if there is one), what the payment terms are, and when the borrower is considered to be in breach. You do not want to part with the money, only to be told later by the borrower:
- It wasn't a loan, it was a gift.
- You said I could pay it back when I could, and I can't right now.
- No, it was payable in five years, not three.
- Interest? What interest?
Get Some Collateral!
Second, see if you can get the borrower to put up collateral for the loan, especially if the money is being lent to buy something. If it is for a car, be sure to file lien paperwork with the New Jersey Motor Vehicle Commission. If it is a home, have the borrower sign a mortgage document and record it with the county clerk.
For anything else, get a detailed description of the collateral, including serial numbers if available. Anything that helps identify the collateral later is required. Then file a form called a UCC-1 . Not only will this give you some recourse in the event of breach, it will also protect you should the borrower file bankruptcy.
Get a Lawyer!
Third, and finally, talk to a lawyer! The above advice is good, but if done wrong may not help you. Be sure to have it prepared by a professional so that it is done properly. The fee will be money well invested, and you will thank yourself later if things go south.
If you live in southern New Jersey, or your debtor does, and you want some assistance in drafting the loan documents (or collecting the debt afterwards), please feel free to call me at 856-432-4113 or contact me through this site to schedule a consultation in my Woodbury office to discuss your case.