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January 24, 2008


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I'm not a lawyer and this is not legal advice.

To the first question, depending on the size of your debt, it might be in your interests to pay an attorney for 1 hour of his or her time to advise you on this. He/she could probably give you valuable insight on the actual legalese in the statute of limitations and give you advice on what do actually bring to the courtroom. It will surely cost you a hundred dollars or more to get this advice, but depending on the size of the debt you're talking about, the advice may be worth it. That's what I would do, you might want to do something entirely different.

To the second question, I think your chances of using the legal system to recover your money without any contract are slim to none. I could be totally wrong, maybe you should consider seeking legal advice from an actual attorney if you think there's a chance that the legal system could help you.

I would need more details, but generally confusion is key against collection law firms. In New York, there are liberal judges that are more than willing throw out bogus claims or claims with no evidence.

As stated, I can't offer advice without knowing more detials....with that being said MAKE SURE YOU ANSWER DO NOT ALLOW THEM TO GET A DEFAULT JUDGMENT

In New York (haven't taken the FL Bar) - the statute of limitations is tolled (which for all intents and purposes means extended) once there is partial payment and/or written acknowledgment.

My advice? create a spread sheet or letter, which highlights disbursements and repayment, put some language in having him/her admit that this debt is outstanding.

If it is a friend, bringing them to court will end that friendship, so try to set up a payment plan with amortizing interest.

So from my point of view in these situations:

1.) Pay back the debt, work out a system to get yourself up to date with the lender. You used their money and basically gave your word when you entered into a legal contract to pay it back, right? The creditor should be willing to work with you (though less likely if it's been that long since you used their credit card). Why look for a legal technicality that will basically mean you got whatever you bought on that credit for free. Ask yourself honestly what that says about your character and your word. Now if you are in over your head maybe you could get a credit counseling service to assist you and maybe a lawyer to represent you. Negotiate a plan that works and pay it off. Wouldn't you feel better doing that?

2.) I would consult with a lawyer not a blog for this one. But is there any way you can work something out with this person you loaned your money to? I presume this is friend or family. Did you attach interest to this loan or was it just a principal only loan? If you can't get to some sort of payment plan/agreement you have to ask yourself some tough questions... Do you want to ruin this friendship through legal action (though some could argue it is already ruined if you are in this situation) and risk spending money to go after your money and does this person have "legitimate" reasons to be in default? Are they going through some horribly tough times? Do you need the money right now? Do they need it more than you? I find it's easier to try to work as friends to come to an agreement that serves both needs and maybe you need to be willing to give more to the other side than one would be normally willing in this time we live in.

Never lend money to a friend or family. Consider it a gift in your mind even if they agree to a repayment plan, and if they repay you, it is a bonus.

Many, many years ago, when a friend asked me for a loan, my father gave me the best advice on the matter I've ever heard: "Don't lend money you expect to get back." Whenever I'm asked to lend money to someone in need, I ask myself if I can afford to give the money away. If I can, and if I believe the need is genuine, I lend the money, but consider it a gift (though I don't tell the lendee that). Set that expectation and you won't be disappointed.

#1 - You should pay back what you borrowed. It's stealing to have borrowed the money and not paid it back. I don't care if the credit card company can write it off. By dodging the company and not paying back what you rightfully owe them, you are a thief. Call the company and work out a payment plan you can afford. Pay them back.

#2 - You may as well kiss your money goodbye. He has no intention of paying you back and never did. It sounds like you got tied up in a con-artists game and he took you for $40k. You could probably write this off on your taxes as an unrecovered loan, you'd have to double check with your tax guy, but once again, never loan money to friends or family. If they need food, buy them food, but don't give them cash. You're not helping them by temporarily delaying the inevitable.

RE: Undertrader's comment:

There are a lot of hoops to jump through regarding writing off personal loans, but if you qualify, they go on Schedule D, so unless you have other gains, you'd be limited to $3,000 per year until the total is gone. By the way, one of the hoops is a valid collection process which sometimes required going to court.

I am not licensed in Florida or Michigan, but I am licensed in a couple of other states and here is my take:

#1 - as people have said, you do owe them something since you took their money. I would recommend appearing in court with whatever documentation you have regarding the account and the last transactions you made. You may be able to plead that the statute of limitations is up (most likely there has been some sort of tolling). More likely, however, you will be able to negotiate with the company's representative to take off late fees and accrued interest. See if you can get them to agree to take it off your credit report as well.

#2 - Your biggest problem may be paperwork. There is something called the statute of limitations that requires that contracts lasting for more than a year must be in writing. In your case, the original $18,000 loan should be okay, since the SOL is calculated from the time of breach. Any other money that you loaned him without documentation may be gone forever. You should definitely consult an attorney on this one. And as for suing a friend....this person is not a friend.

The two comments posted are actually contrasting each other nicely.

One person wants to get out of paying what is owed while another wants to get paid what they are owed.

Just find that funny.

I just don't know what you gain in suing in number 2's case, lawyerontheDl... You have to pay legal fees, deal with taking time off for a trial, find paperwork, testify, deal with the he said she said if there isn't much in writing and then if you do get a judgement it doesn't necessarily mean you collect your money then (or ever depending on the circumstances of your borrower). I mean no disrespect to the law profession. I actually believe it is a noble and just pursuit (well mostly just ;) ) but the only people that tend to gain there are the lawyers and those in the court system because now they have another fruitless case to justify further expansions and overtime.

I am not against taking things to court. I think when you are dealing with a corporation and there has been a wrong that they refuse to fix that it must be handled legally (with reasonable demands mind you.. pay back the damages and maybe a year of lost pay if that resulted in the damages and reimburse for all reasonable legal fees). But for person to person it doesn't really do much but put further enmity between you and this person who you made the unwise decision to loan to. Try and deal with them man to man, be flexible for repayment and be willing to say bye bye to the money..

As with the other caveats, I'm not a lawyer.

BUT for #2, I think you should definitely see one because it sounds like you have a good shot of getting the money back.

For a transaction to be a legally binding contract, it does not necessarily have to be in writing and signed. There's a famous court case where a legally binding contract was done on the back of a napkin at a restaurant. There just needs to be two parties that agree to give each other something of value. Sounds to me he broke the contract, and with all of your e-mail paper trail (which you will need) you can form a case against him to eventually file a judgment against his assets.

A good start is to understand what on earth you are talking about, it's not a statue of anything, it's a statute.

Here's how a statute of limitations works (and yes, Justin, it is called a statute of limitations). First you have to know the applicable time period - for example, in NY, the SOL on breach of contract cases is generally 6 years from the breach. figuring out what SOL applies and when it starts running (i.e. what is the triggering event from which you start calculating how much time you have left - including possible tolling) is harder than it seems.

So, neither of these questions is easy to answer, and there is not really enough information in either question to answer it accurately.

If you can find a lawyer who is licensed in your area you should at least ask them to direct you to the applicable statute of limitations so you can try to figure out what limitations period applies to your situation.

As for question 1 - yes, it would help for you to bring a copy of the statute with you to court, but bringing your credit report won't necessarily be enough to prove when the statute of limitations started running. Just because the debt existed 7 years ago, does not mean the statute of limitations started running then. I'm not saying you shouldn't try to make the argument, but you should not rely only on that. Try to come across as sympathetic as possibile to the judge - be extremely respectful and don't act as if you are entitled to get a free pass just because the SOL may have run. If you can, you should be prepared to explain why you didn't pay the bill and to make a case for reducing any fees or charges that have been added. If a judge thinks you have a decent argument on the merits, he or she might be more likely to find in your favor on the SOL issue.

I will address question 2 in a separate post.

Question 2 -

There are too many unknown variables to your situation for me to know if you have a remedy in court. But I don't think you should give up hope, because there is a chance that you do, depending on the facts.

As an initial step, I suggest you make a clear timeline of the events from the date of the first loan, including each discussion, email, partial payment (if any) with as much relevant detail as you can recall and referencing supporting documents. For example:

Jan. 10, 2003 - D telephoned me to ask me to loan him $18,000. I agreed to loan him the money and he said he would pay me back within six months (or he said he would pay me back within a year - or when he had the money - or whatever he actually said)

Jan 11, 2003 - I gave D a check for $18,000 which was he deposited to his account on the same day (Ex. 1 - cancelled check).

July 30, 2003 - I called D regarding repayment of loan - he said he needed more time.

August 10, 2003 - D emailed me and said he needed another month to come up with the money, but promised to repay the entire amount by September 10 (Ex. 2 - email)

You get the picture. Of course, this is all made up, but it should give you a sense of what to do. You should definitely include the dates and amounts of all partial repayments as well as all the subsequent loans and how they were (to him directly or to third parties). Any documentation you have to support each event on the timeline is important to include. With respect to each loan, specify the date, how much, form of the loan (check to him or third party, cash, etc.), interest agreed to, repayment date agreed to if any). Further discussions or emails in which he reaffirmed the loan, promised to make payments, or in which you agreed to a revised repayment date should be included on your timeline.

Then you really need to talk to a lawyer. You may still be within the statute of limitations, but only a lawyer can tell you for sure (unless you are willing to do the legal research and make the calculations yourself). But, as I said, it can be tricky. This is most likely to be viewed as a breach of contract case, so if the SOL is more than 5 years where you are, you may be fine. Remember, the time is generally calculated from the BREACH, which (to state it simplistically) is when the defendant doesn't doesn't do what he is obligated to do (either by law or contract).

Thus, if on Jan 10, 2003 he said, I will pay you back in one year, the SOL generally doesn't start running until he misses that deadline on Jan 10, 2004. Furthermore, if after missing that deadline, he says, okay I will pay you back on July 15, 2004, you may have a new contract, and the SOL won't start running until July 15.

It is true that some agreements are required to be formalized in writing (this is actually called the Statute of Frauds - not the Statute of Limitations). You should check to see if your state has a Statute of Frauds and what types of contracts are covered. Again, you should ask a lawyer about that.

The next thing you have to figure out is what court you should sue it. Different courts allow you to sue for different amounts - so small claims may be $5000 while the superior court may be $25,000 (these are just examples - every state has its own rules).

Before you sue, you should send a demand letter setting out clearly what you believe is owed to you and demanding that he pay you back by a certain date (say two weeks) or you will take him to court. Some states may actually require something like this so you should check on that and make sure yours is in the correct form.

On and one thing I didn't make clear on Question no. 2. Each loan you made would likely be considered a separate transaction with a separate statute of limitations. So even if you were late on the first $18,000, let's say you next loan was for $10,000 and was within the SOL - you could still sue on that one. That is also why it is really important to note the dates and amounts of partial repayments. For example, if this guy paid you back $5000 at some point, you could argue that that $5000 only applies to the $18,000 loan and the rest are still unpaid. That way, if you missed the SOL on the first loan, that $5000 would not be used to offset any of the subsequent loans and you still have a chance to recover the full amounts on your subsequent loans.

Another thought, you should check into whether your state allows for statutory pre-judgment interest. If so, you will want to calculate how much interest is owed on the loans and include that in your demand.

1. I disagree with that you owe anything back if the statute of limitations is exceeded. You have already paid with bad credit rating, limited ability to gain new credit, and higher interest if getting new debt. This is why we have statute of limitations, because there is already a price you've paid for the debt. This is nothing new, whether it be being awarded time served, getting to keep what you've stolen in exchange for prison sentence or cash judgment etc. The issue here, is that the statute of limitations (SOL) might not apply in your case. There are many things that can rebirth the debt like acknowledging the debt before the SOL is exceeded, etc. Do a google search on SOL and you will see several examples. It's always wise to seek legal counsel if going to court, even if it is a small claims court. Knowing the appropriate laws is wise when going to court. Knowing the law is also wise, and if the plaintiff is required to provide you with information prior to court. My biggest question for the plaintiff ahead of the court hearing would be the basis for the claim. However, this is where it also becomes tricky and getting a lawyer would help out, since you want to be able to ask without acknowledging the debt.

2. without any timeline for the debt, how can you have a SOL on it? If the emails state that he will pay you back when he has the money, then again where is the due date to turn the debt from a current debt to a bad debt? My suggestion would be to seek legal counsel. Now you could go to court, and since this is a large amount, it would exceed small claims court. You would probably get a favorable judgment since the person has acknowledged the debt and has agreed to repay you and it is documented in emails and text messages, which is a viable acknowledgment of the debt. However, the big question is that even if you get a favorable judgment, if the person has no capacity to repay you now, how can he repay you after the judgment? Does he have salable assets? does he have a job?

Regarding Tim's POV for number 1...

You are saying that the person already paid. Sure in a justice sense of "paying" in some ways they have already paid. What they hadn't done, however, was repaid the money that they borrowed. Yes there is a legal technicality that could potentially protect the borrower. Yes their credit rating is hurt already. At the end of the day, it is still stealing in a sense.

If you borrow 20,000 to buy a car and you have no intention of repayment and you sign the contracts saying you will pay it back and you never make a payment, you have stolen the money to buy that car (maybe a car is a bad example because they will repossess the vehicle but let's say they don't or can't). Yes you have destroyed your credit rating (a side effect), yes you have accrued a lot of late payment fees and interest fees but that still has not paid back your debt to the creditor. You having a poor credit rating does nothing for the person who loaned you the money.

So at the end of the day you have to ask yourself if you believe that borrowing money with a promise to repay with interest is really a promise. Then you have to ask yourself if your word is worth anything and if breaking a promise can be rationalized away with some "interesting" logic.

My point holds especially true when most creditors will be willing to work with you to help make a plan, settle for a percentage, hold interest, suspend/reduce late fees and accumulated interest. At the end of the day the bank or financial institution is willing to work with you to at least get something back and have it be a "semi-win/semi-win" situation. They will even work with you to work on the credit report entries.

Big advice out of these tough questions is: Don't wait to call your creditor until you get sued. It's a lot easier to talk to them the moment you think you might be late on a payment. Don't wait until the debt starts snowballing against you and you feel overwhelmed and let it turn into an avalanche.

Tim - I also have to point out the tone in your two contrasting answers. You tell person 1, you've paid enough forget the creditor, take advantage of the technicality and don't pay them back. Then you tell number 2 to go after them in court, pay for legal counsel and then start listing off ways to get the money back ("Does he have salable assets?" "Does he have a job?") Sure in number 2 the debtor hasn't "paid" through credit report entries, etc...

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