Before I get into this week's topic, I want to make an exciting announcement. The month of June 2022 marks the 3rd anniversary of Liberty Legal Solutions, LLC, and the beginning of the 4th year of my law firm's service to individuals and small businesses in Oklahoma. 2022 has been an exciting year of growth for the firm, and the best is yet to come. In this week's Freedom Friday blog and email newsletter, I want to talk about a topic that doesn't necessarily affect small business owners, but it does affect individuals, and believe it or not, this issue has generated two or three clients for my law firm, and that is loans made to family and friends. In today's Freedom Friday blog and email newsletter, I want to give some advice to those of you who are interested in lending large amounts of money to your family and friends. I've titled this blog and email newsletter “Let the Lender Beware: Lessons from Lending Money to Family and Friends.”
There is an old saying, “Caveat emptor,” which means let the buyer beware. You may have heard that because many people buy something, and then experience what we call “buyer's remorse.” Or, perhaps you have bought some stock or investments which have gone down. But what about loans? Many times we will caution the borrower, and it's let the borrower beware, but in today's Freedom Friday blog and email newsletter, we're talking about loaning money to family and friends, and if that is what you're considering, it's let the lender beware, not the borrower. The reason for this is that because you are a family member or a friend, you can really be taken advantage of by your family member or friend wanting to borrow your money. We know this is true because many times elderly parents are taken advantage of by their adult children, and we see this in identity theft cases. However, if your “needy” family member or friend asks you for a loan (and not a gift), here are three (3) lessons I've learned from representing family member creditors from bad debts accrued from lending money to their own family:
Be Prepared to be Screwed
The first lesson I've learned from representing family member creditors from bad debts accrued by lending money to their own family is be prepared to be screwed. Again, many times when a “needy” family member comes to a more well-to-do family member and asks for a “loan” they are really expecting a gift, and that's a major defense if you decide to file a lawsuit when they don't pay you back when they were supposed to. Even if you have the borrowing family member sign a promissory note, be prepared that they will not pay you back on the terms of the promissory note and you will need to take a loss, at least temporarily.
Be Prepared to Spend a Lot of Money
The second lesson I've learned from representing family member creditors from bad debts accrued by lending money to their own family is be prepared to spend a lot of money. Especially if you hire a lawyer to file a lawsuit on your behalf to recover the money that is owed, you should expect to pay several thousand dollars in legal fees to the attorney representing you. In my law firm, if you are owed $10,000.00 or more, I charge at least $1,500.00 to file a lawsuit, plus the filing fee and costs of service. If the borrowing family member does not respond, you'll pay another $500.00 for me to obtain a default judgment on your behalf, and another $500.00 after that to garnish your borrowing family member. Of course, if the borrowing family member decides to litigate the case, it is more expensive. So, be prepared to spend a lot of money on legal fees.
Make Sure You Get it in Writing
The third lesson I've learned from representing family member creditors from bad debts accrued by lending money to their own family is make sure you get it in writing. Always have a written contract or promissory note (either secured or not secured) to memorialize the loan agreement. Thankfully my clients have presented me with written loan agreements and promissory notes, and that means that if the borrowing family member tries to claim the loan was a gift, that defense will not work because they, in fact, signed a promissory note or other written loan agreement. However, if you don't get the loan agreement in writing, you won't have a strong case, and you may not be able to get the judgment you need in order to collect the bad debt. So, a written contract, loan agreement, or promissory note is a must if you decide to loan money to family or friends.
If your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth, please contact me at [email protected] to schedule a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/