How Can I Recover Money Loaned to a Loved One?

When a friend or loved one is facing financial difficulties, wanting to help them is natural. However, loaning money always comes with risks, especially when a large sum is involved. If your friend hasn’t paid you back after a certain period of time, you might have to write off both the loan and your friendship. Here are a few tips to help you avoid this and recover your money without losing your temper or going to court!

Send friendly reminders

First and foremost, try to resolve the situation amicably. Start out by sending them friendly reminders. There might be a good reason why they haven’t paid you back within a reasonable timeframe (job loss, for example).

• Tell them you can’t afford to lose money these days because you have a tighter budget.
• You can also send a message to remind them that they owe you money and that keeping their promise and paying you back would be best.

Have a candid discussion

Many people have difficulty talking about money and few are comfortable broaching the subject with loved ones, in particular. However, if you want to get your money back, you have to take the bull by the horns. Invite your friend to your home for a coffee and tackle the subject at hand. As they say, “A debt paid is a friend kept.”

Propose a repayment plan

If you realize that your friend is unable to repay the entire amount at once, start by asking them to pay half within a week and the other half in a month. Don’t allow them to push the first repayment deadline. Your goal is to initiate the repayment process as quickly as possible. Explain the benefits of breaking up the payment over several weeks (easier budgeting and reduced stress, for example).

Draft a written loan agreement

Even if you didn’t ask your friend to sign paperwork when you loaned them money, it’s not too late. This acknowledgement of debt should be signed by both parties and outline the terms of the loan (amount loaned, interest rate and repayment terms, as applicable).

If your friend doesn’t want to sign the agreement, send them an email or text message that mentions the loan and its terms. Keep a record of their responses (if they make yet another excuse for postponing the repayment or say they’ll make the first repayment in a few days and the second in a month, for example). These messages could be used as evidence in court.

Consider working with a mediator

Mediation can help both parties to settle disputes out of court. Mediators are appointed by the court. This process can help you reach an arrangement that will be upheld by the court. In Quebec, mediation sessions for small claims cases (involving sums of over $5,000) are voluntary.

Take legal action

If you realize that your borrower (who may no longer be your friend at this stage!) doesn’t intend to repay you, send them a formal notice. This is a final warning before taking legal action. You can draft this document yourself (templates are available online) or ask a lawyer to help you. Your borrower must pay back what they owe you within a specific period, which is typically 10 days. If they fail to do so, the next step is a court hearing.

While paying a professional to draft a formal notice is more expensive, it will be more persuasive than drafting it yourself.

As a last resort, initiate legal proceedings

• If you loaned less than $15,000, you can file a complaint with the small claims court.
• If you loaned more than $15,000, you must take your case to the Court of Quebec or the Superior Court.

In any case, we hope it won’t come to that! Now you know that lending money to a friend comes with risks that go beyond not receiving repayment. Read our article on the risks involved in co-signing a loan. Think twice before loaning money!