How do I get someone to pay me the money they owe?

Recently on our forum a user asked, "How do I get someone to pay me the money they owe?" If you've loaned money to a friend, neighbor, relative or stranger and they have failed to repay you, there are several steps you can take to increases your chances of getting the money.

Loaned money to a friend or relative

First, let's discuss loaning money to a friend or relative. In the current economy it's not unusual for individuals to loan money to friends or relatives. Although loaning money to anyone and expecting it back can be a sure fire way to destroy relationships, there are steps you can take to limit the damage.

Did we have a valid contract?

First, be clear about the terms of the loan and get everything in writing. Although oral contracts can be legally enforceable, written contracts are always better if you are forced to take legal action. For example, Statute of Frauds (S.O.F) requires certain contracts be recorded in writing in order to be enforced. The S.O.F. requires that all contracts for the sale of goods over five hundred dollars be in writing to be enforceable.

Other contracts which must be in writing include:

• Real estate sales
• Real estate leases lasting longer than one year
• Transfers of property at the owner's death
• Agreements to pay another person's debt
• Contracts that necessarily take longer than one year to complete
• Contracts that last longer than a party's life
• Contracts for over a certain amount of money (differs by state)

There are exceptions to the examples outline above. For instance, if you have suffered a detriment form the defendant's promise or if one party only partially complied with the terms of the contract, the court may enforce the oral contract.

Send a formal demand letter

Assuming you have contacted the debtor multiple times and tried in good faith to collect the money you can ramp up your collection efforts by drafting a formal demand letter. Make copies of everything you send and send it certified mail.

The letter should request payment, outline the amount owed, document a deadline for response and payment, list all acceptable forms of payment, and detail the steps you will take if he or she fails to pay.

Next, determine whether or not the money owed is significant enough to file a lawsuit in small claims court. If you are owed a few hundred dollars you may decides it's not worth the trouble. Small claims courts generally hear cases where the plaintiff is owed between $3,000 to $10,000. If you cannot file your suit in small claims, you will need to file it in your district or county court. You can locate your state court's website and statues by following the correct link from the National Center for State Courts' state court directory.

Remember, if you wait too long to file a case you may forfeit the right to legally file a claim. Every state has a statute of limitations for debt collection.