Family member refuses to repay loan. What are my options?

Recently on our legal forum a user asked, “I took out a student loan for a family member eight years ago. Now that family member has a great job and refuses to repay me for the loan. Now the lender is threatening to garnish my wages. What are my rights? How do I force repayment of the loan?”

Despite warnings from financial professionals, it’s not unusual for family members to either take out loans for other family members or co-sign on loans. Unfortunately, when it’s time to repay the loan the lender does not care who actually used the funds, they simply want to be repaid.

Creditor suing for repayment of a loan

Student loans are similar to other unsecured personal loans. The lender will expect that payments will be made, and if they are not, the lender will eventually seek legal remedies. If you borrowed money, regardless of what it was used for, the lender has a right to collect payment of the borrowed funds per the lending agreement.

If you stop making payments the lender generally has the legal right to file a suit for nonpayment against you. If the court agrees that the lender has a claim they will issue a judgment. The type of payment options varies by state, but it may include wage garnishments, bank account levies, and liens.

So based on the information you have provided, the lender probably has the right to file a claim against you and is likely to receive a wage garnishment. The wage garnishment will be enforced until the debt is repaid.

Now, that we’ve established the legality of what the lender is allowed to do, let’s discuss your options.

Getting repayment for a loan from a relative

Getting your relative to repay you for money borrowed on their behalf can be tricky. First, you need to evaluate how important this relationship is and whether the legal efforts you will have to take are worth it. Specifically, are you willing to risk the relationship to get repaid? If you are it’s time to consider whether or not you can sue your family member in small claims court.

The first consideration is the amount owed. Most states allow claims which range from $5,000 to $10,000. If the amount owed is more than your state’s maximum amount you can still pursue the claim in small claims court, but you will have to forgo the difference. If you want to sue for the entire amount, however, you will have to sue in the regular division of the court.

The second consideration is whether or not you can prove you had a contractual agreement that your family member would repay the loan. Although most financial transactions should be documented in writing, oral agreements can be as binding as written agreements. You will, however, have to have evidence that you and your family member agreed to the loan and that they would pay it back in a certain manner. If they failed to fulfill the oral agreement they can be sued for breach.

Unfortunately, proving breach of contract for an oral agreement is more difficult than proving a breach of a written agreement. Evidence can include witness testimony (i.e., someone else was present when the agreement was made), voice mail messages, texts, or emails.

Finally, you will also need to file your claim prior to your state’s the statute of limitations. All states have a statute of limitations for debt repayment. If that date has passed you will be barred from recovery.

Bottom line:

The lender can sue you for breach of contract and may be allowed to garnish your wages. You, however, may also be able to sue your family member for breach of contract.