A Loved One Owes You Money. Now What?

Your sibling asked you to cover their rent for a couple of months while they were between jobs. Or maybe you loaned a friend a few hundred bucks for a car repair they couldn’t afford.

You’d do anything to help those you love. And you did. But what should you do when they don’t pay you back? Consider these options.

Gently approach the subject

Asking a friend or family member for money back may feel uncomfortable. But sometimes a simple reminder is all it takes to jump-start debt repayment.

Before reaching out, think back to the discussions you had when you offered the money: Did you make it clear that this was a loan, not a gift? Did you confirm payment terms and a deadline? Did you get the details in writing?

Framing the conversation around facts rather than your feelings, or unspoken opinions, can prevent confusion. No matter the context, bring up the issue calmly (and privately) and avoid making assumptions. Using harsh or accusatory language can not only strain the relationship, but it can also make your loved one less likely to pay up.

“What we have to do is create space for that individual to come out of a shame mindset and perspective, and become less avoidant to engage in a healthy conversation,” says Michael Thomas Jr., an accredited financial counselor who teaches in the University of Georgia’s financial planning program.

Acknowledge what’s happening in your loved one’s life and be upfront about your own situation. Then, you can discuss how to move forward. “I think the best approach is just to come at it with a lot of empathy and understanding that you’re both in it together,” says Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education service.

Make or revise a payment plan

Ideally, before lending them money, you’d have made a loan agreement outlining how much the borrower owes, how they’ll pay, when payment is due and what to do if they can’t pay.

If not, or if the person can’t meet the original terms, hash out a new plan. Consider extending their deadline or allowing them to make smaller payments. Thomas says setting up automated payments through a peer-to-peer platform can make it easier to get repaid over time.

A traditional payment plan isn’t the only option. Perhaps your friend or relative could chip away at the balance by periodically covering one of your bills, Nitzsche says, or paying for a meal.

If your loved one is struggling to come up with cash, perhaps they can repay you with service. “Suppose the lender needs a family room painted or new faucets installed. A borrower with those skills might be happy to work off the debt,” attorney Cara O’Neill, a legal editor at Nolo, a self-help legal website, said in an email.

Forgive the debt

Working out an arrangement can be stressful, especially if your loved one doesn’t come through. Waiving the debt could be the best move for your peace of mind and relationship. However, you might reconsider giving this person, or anyone, money again unless you’re prepared to lose the amount. Think carefully about how forgiveness would impact you.

Thomas suggests asking yourself: “If I do not get this money back, it’s not just how will I feel, but how will this affect any of my financial goals or anything that I have planned to do with those resources?”

Take legal action, as a last resort

Thomas doesn’t advocate suing friends or family in most cases. But that path might be worth exploring “if there are large sums of money on the table and there is an individual who you have reason to believe has the capacity to pay,” Thomas says.

It’s important to have evidence on your side, too. You’ll have an easier time proving the case if you have a written contract, O’Neill said. If you think you’ve got a chance, there are a couple of ways to proceed.

“The quickest and cheapest way to get a money judgment is through the small [claims] court system,” O’Neill said. “The judge resolves small court cases in one court appearance, and the filing fee and service of process fees usually cost less than $200.”

If the loan amount exceeds the small claims limit — generally $5,000 to $10,000, depending on the state — the case will take significantly longer and be more expensive, O’Neill said. “The filing fees will be more and the lender might need to retain counsel because the traditional court system is more challenging to navigate without an attorney.”

Even if you get a judgment in your favor, that doesn’t mean you’ll get your money back, Nitzsche says, “particularly if the person who had the judgment against them is on certain types of protected income, like disability or Social Security. That creates an extra wrinkle because you can’t get a garnishment against wages.”

If you go this route, prepare to burn bridges. Will it be worth it if you get your money back? Will it be worth it if you don’t?