How do I go about collecting a debt from a (so-called) friend of the family?

December 12, 2005 1:50 PM

I really need AskMefi's collective wisdom on this one. How do I go about collecting a debt from a (so-called) friend of the family?

I'll try to keep the facts simple. Almost a year ago my wife lent some money ($3000) to a friend of hers in order to help fund her jewelry business. This money was supposed to be paid back within two months and was not. The reasons for this seemed understandable at the time. However a few months later my wife loaned her another $1000. The theory being that this was all the capital needed to get a return. (Said "friend" buys jewelery wholesale and then resells it at jewelry fairs around the country).

Now it gets messy. My wife gave this individual her credit card number in order to fund the wholesale purchase. In addition to the $1000 agreed upon there was an additional $1500 placed onto the card without permission. To make a long story short, very little of the money has been repaid - my wife has tried to resolve this in many ways short of calling the police. The issues are complicated by the following facts: we are not geographically close to this individual so we don't see her frequently; our young son and the individual's young son were friends before all this happened and lastly there is a strong suspicion that there may be drugs involved, meaning that we think she (and her husband) are psychologically addicted to pot. There is much evidence to support this- in addition to past observation there is always another excuse about the delay of money.

I have agreed to take over this issue from my wife. I see the complications with the initial $3k being that we only had a verbal agreement (which was a really bad idea I know). I'm really at a loss as to how to start getting back our money, which is around $5000 at this point. I feel like I have to make very clear to this individual that a plan is needed to return our money. At this point I would be happy getting our original funds back, never mind the "interest" we originally agreed upon. Any advice appreciated!

posted by anonymous to work & money (28 comments total)

Pay a surprise visit and confiscate property.
posted by lester at 2:12 PM on December 12, 2005

Since it still falls into the < $10,000 category, you can take it to small claims court. i'm not sure where you are, every location has different laws. in if the other party don't show up, it's defaulted in your favor, and you can get a court order for them to pay your money back. usually this involves the money coming off their paycheck at the employer's side, or as an automatic payment from their bank account.

The personal side of it, if you wish to remain friends, there are really no viable options.
posted by Sallysings at 2:16 PM on December 12, 2005

This is a sticky situation, complicated by the fact that they are family friends. You have 2 options at this juncture:

1) Drop the whole thing. You will never get the money back. I guarantee it.
2) Take it to small claims court. You will get the money back, but risk the friendship. Of course, it's pretty much dead already.
posted by muddgirl at 2:20 PM on December 12, 2005

small claims court get a judgement and wash your hands of them. People like this are not your friends, they are leeches. Worst case scenario, you never get the money back. Best case, they pay off the judgement and you get your money. Either way, they effectively ended the friendship when they took advantage of your wife.
posted by cosmicbandito at 2:23 PM on December 12, 2005

Cut your losses and forget about it, both the money and the relationship. Take the lesson and move on, protect your wife and son from any further emotional involvement by just dropping it.
posted by scheptech at 2:27 PM on December 12, 2005

A friend of mine won a small claims suit against her landlord in another state that she's never seen a penny from.

Even if you win in small claims court you won't be guaranteed immediate payment-- the winner of a small claims case is responsible for all collections efforts, which requires additional time and money. And if the losers would rather simply deal with ruined credit and endless collections efforts and still not give up a dime, they can do that.

How ugly does it have to get before you just realize "I'd simply rather not see or hear from them again, ever"? These long battles bring out the worst in people, even when they are right.
posted by hermitosis at 2:28 PM on December 12, 2005

I'm with scheptech. You won't get the money anyway, just an empty judgement to waste your time trying to enforce.

we think she (and her husband) are psychologically addicted to pot.

You think they bought $5000 worth of pot?
posted by StickyCarpet at 2:32 PM on December 12, 2005

i would be honest, pleasant, business like and non judgemental and tell them you need the money that you kindly loaned them...tell them you can work out payments if need be but set a date for finality...best of luck.
posted by jamie939 at 2:47 PM on December 12, 2005

I'd put another vote that this is a pricy lesson. The unauthorized additional $1500 seals it for me, that you're not getting the full story (or your money).

If you decide you want to pursue it with a small claims judgement, I suggest putting a predetermined cap on the amount of time you're willing to invest, and abandoning it after that. Otherwise you have the potential to spend a very long time being annoyed.

As far as the pot explanation goes, I'm with StickyCarpet. That'd be like trying to spend $5k on on Milwaukee's Best.
posted by I Love Tacos at 2:48 PM on December 12, 2005

They may have spent the 5K paying down other bad debt, to get someone with a stronger legal claim off their back. You are very likely not their only creditor.
posted by scheptech at 3:02 PM on December 12, 2005

I agree with most of the advice here re: salvaging the friendship, and the (un)likelihood of getting the money back after a small claims court judgment.

IANAL, but here's what I would do, in escalating order:

1) Start (politely and legally!) harassing them regarding the money. Send an email saying that you really need the money back, with a suggested timetable. Emphasize that you really need the money, and are serious about getting it. If they don't reply or are evasive, send another. Then call them on the phone. Do what you can (call at times of day that you know they will be home, from an unlisted number, etc.) to talk to them directly.

If this does not work, then:

2) Politely mention that you are willing to pursue legal action - e.g. "I'd really like us to work this out between ourselves, as I would prefer not to have to resort to hiring a lawyer or taking you to small claims court to resolve the matter" (or something to that effect).

Then:

3) Impolitely threaten legal action. Send a paper letter advising them that, if they do not agree to a plan, you are prepared to take them to court. Give them a firm amount of time to reply - e.g. "If we do not have such an agreement in place by January 15, I will be forced to pursue legal action."

Then:

4) Take them to court. Advise them in writing, and give them one more chance to agree to a repayment plan.

At any point in these steps, you can offer to settle for less than the total amount, if it seems like that will get you somewhere.

Best of luck.
posted by googly at 3:11 PM on December 12, 2005

there was an additional $1500 placed onto the card without permission.

The technical word here is theft. So one option is to write them a letter and say that you are considering reporting the matter of the $1,500 to the police, and are giving them (say) 90 days to resolve the matter by paying this back, and that you suggest $500 now and then two more payments of $500. (If you want this to be really scary, and have a lawyer friend, then ask him/her to send it.)

The basic question, of course, is whether they have any money. (A pot addiction doesn't have to be that expensive, although it can interfere with actually working to earn money.) If they don't, then even something like small claims may be pointless.

One thing to consider - you may be able to take a tax deduction for the bad loan (link points out several caveats - you must prove that the loan is worthless; you can only use the loss to offset a capital gain).
posted by WestCoaster at 3:12 PM on December 12, 2005

I've been in a reasonably similar situation with a close friend; probably about half the amount of money that we're talking about here, but given my financial status at the time felt like much much more. To cut a long story short, it was resolved by a very frank, calm (mainly because I was in shock given that I wasn't aware this money had been "borrowed") face to face, cards on the table type discussion. A realistic payment plan was devised, the money was gradually returned (we didn't bother with interest) and we all learnt a lesson. Six years down the line it's a non-issue, all in the past. The fact is that friends occasionally fuck up big time, so hopefully you can resolve this without having to involve the "authorities" or totally cut lose the friend.
posted by chill at 3:24 PM on December 12, 2005

I agree that you should expect that the money is gone but I disagree that you should just walk away. A 'worthless judgement' doesn't have to be if you're a pit-bull about it. If you can get a lien put on their house you're in a much better situation to get your money back eventually and you can collect statuatory interest, usually around 10% a year depending on state.

However you do have to consider the initial cost of small claims, though I think a $200 bet on a $5000 return is worth it. You may not be free to use small claims if they're out of the state, however, as your message seems to indicate they are. NOLO press puts out some guides on using SCC.
posted by phearlez at 3:27 PM on December 12, 2005

1st, you should not about the friendship. Unauthorized use of your credit card made it clear they they were willing to trash the friendship. The kids will work it out on theor own. Get them to pay any amount, no matter how small; and keep up the pressure.
posted by theora55 at 3:32 PM on December 12, 2005

If the $1500 was charged to her credit card recently, your wife also has the option of reporting this to her credit card company as an unauthorized charge. She can at least recover that much.

A verbal agreement is not the best idea, true, but it's still legally binding in most cases. Documenting this whole mess in writing now will be very helpful if you do decide to take it to court. Your wife should write down as much detail as she can remember about this agreement.

If you want to collect this debt I would start by sending the "friend" a letter in which you clearly outline the situation (describe the terms of the verbal agreement, etc.) and state the total amount owed with a hard-and-fast deadline for repayment.

You may want to require monthly payments of x amount if you don't think they can pay a lump sum, but make it really clear that compliance is NOT optional this time. If you think the friendship is already a lost cause I would explicitly state that you will take the debt to small claims court if it's not repaid on time.

If the response to your letter is not timely or does not include a check in the proper amount, your next decision is whether to talk to a lawyer or just chalk it up to experience. I would not make that decision until I saw how they responded to a direct written demand.

On preview: If you are serious about wanting to collect the debt, DO NOT rely on email or the telephone. Use certified mail and don't forget to include the tracking number on the letter itself. That way you can prove they got the letter if that becomes necessary later.
posted by naomi at 3:37 PM on December 12, 2005

If you're sending letters now and considering taking them to court in the future, do try to get a letter that has them sign off indicating they actually *do* owe you the money. An agreement to repay the entire sum (detail when it was originally loaned/stolen) in X payments of Y or something like that. Even if they don't ever actually pay you the money back, having something in writing, even after the fact, should help your claim.
posted by jacquilynne at 3:51 PM on December 12, 2005

there is a strong suspicion that there may be drugs involved, meaning that we think she (and her husband) are psychologically addicted to pot.

What does this mean, or have to do with the question? Like StickyCarpet asked, do you think they just spent all the money on pot? (unlikely.) Do you think that for the last year, they've just been too stoned to get off their asses and pay you? (also seems unlikely.) Are you worried about confronting a dangerous dope fiend? (if so, perhaps you should reevaluate your preconceptions about what pot does.)

Perhaps you should detach this issue from the question of getting any money back from them - smoking a lot of weed (even being "psychologically addicted" to it, if such a thing is possible) isn't going to automatically make someone unable to pay back a loan, and for a lot of people, it won't even make them financially irresponsible. I suspect that the problem is with the people - even if they were stone cold sober for the last year, I bet they still wouldn't have paid you back.
posted by advil at 4:16 PM on December 12, 2005

In addition to the $1000 agreed upon there was an additional $1500 placed onto the card without permission.

That's straight-up theft; fuck them, call the police, call the credit card company. You don't need these people in your lives. The rest of the money is gone and you will never, ever see it. Sorry.
posted by Optimus Chyme at 4:17 PM on December 12, 2005

If you do decide to pursue it legally I'd suggest your main problem is going to be establishing the facts starting with whether a loan agreement was even entered into. You'd be able to show the transactions occurred but proving whether they were gifts, repayment for something else, 'investments' with an expectation of sharing a percentage of profit, or something else altogether might be difficult if the alleged friends prove argumentative.
posted by scheptech at 4:22 PM on December 12, 2005

1. Get comfortable with the fact that this friendship will end or at the very least be severely tested. But the damage has already been done - the unauthorized part really sealed the deal. So don't get all worked up about the friendship ending, it's way too late for that. Don't worry about the kids friendship, that is theirs to worry about. They could easily just distance themselves from both sides and remain friends, or they could part ways. It's their choice.

2. Make sure no further damage can be done - cancel the credit card, remove any means that they might have of extracting any more money from you.

3. Gather /all/ documentation that you can possibly find on the matter, and sit down and write down every fact that you can recall about the case. Dates, amounts, descriptions of phone conversations, anything that comes to mind. And with any ongoing actions you take, make sure to document exactly what happened, when it happened, and what was said. You might consider handling everything in writing this time, perhaps to the point of sending registered mail. This removes their ability to say that they misunderstood or weren't informed; in addition it sends a signal that you are getting serious.

4. Sum up the entire amount that is owed, and offer terms and a schedule of repayment. Put this all in writing and send it to them. If they accept, then you at least now have a signed contract saying how much they owe and what the payments are to be, which will give you much more leverage in court. If they do not agree, then you will have to escalate. I really don't think you can do this just by continuously calling them or sending letters - you will actually have to sue them, or get the police involved on the unauthorized purchace.

Alternatively, you might consider selling the debt to a collection agency. You will only get a fraction of what you're owed - perhaps 10%? I don't know. They may not even take your case if the only exiting documentation is a verbal agreement. But at least you would wash your hands of the situation and they would take on the burden of constantly calling and harassing and sending threatening letters.
posted by Rhomboid at 4:24 PM on December 12, 2005

I'm still with my original suggestion: forget it and carry on.

That 3rd transaction for $1500 is going to be interesting. Unless you lie and say it was part of the supposed loan agreement, you won't be able to collect it on that basis, you'll have to make a separate case for theft in a separate court?

And, what's a judge going to say about it when you both agree the credit card number was voluntarily provided for the purpose of funding the jewelry business? You're going to have to argue about for how much exactly and it's all verbal.
posted by scheptech at 4:43 PM on December 12, 2005

If there is any possible way to look up this friend's siblings or parents, I would contact them and explain the situation. There is a possibility that the debtor's relatives might pay you back directly and deal with getting their money back from your friend. In the case that your friend has borrowed too much money from family already, this option probably won't pan out.

However, the added benefit of involving the friend's family is the humiliation factor. It sounds mean but shaming them into paying you back is probably the only way you are going to see any money.

As a side note, I'd probably find out about the jeweler already purchased and try to repossess the jewelry if it is not already sold.
posted by necessitas at 4:53 PM on December 12, 2005

I disagree with the small claims court advice. I think your case is too weak to even win there, unless they are stupid enough to not even show up. And even if you do win, I'm guessing they don't have the money, and the additional hassle of finding it will be very difficult.
posted by lester at 5:49 PM on December 12, 2005

Sorry -- just read the first 2-3 items and I feel you will be "stuck."

Don't lend any more $. Have a "heart to heart" and work through issues -- that's all...
posted by orlin at 6:25 PM on December 12, 2005

My sister had a similar experience, which was resolved to her satisfaction by a small claims court. This was in the UK; it might be different where you are, but there was no difficulty in convincing the court that the money was owed. There were no transaction records on paper as all her lending had been cash. Small claims is not like Perry Mason.
Her 'friend' refused to pay even after the judgement and a repeat visit to the court saw the money deducted from her pay checks.
What other people said about the friendship is true. You should explain this to your wife, and may also need to explain this to her ex-friend even after taking her to court.
posted by nowonmai at 6:34 PM on December 12, 2005

I do not think you should walk away from it. Even the payment of $100 a month would eventually get you your money back. It's worth trying that at least.
posted by five fresh fish at 7:31 PM on December 12, 2005

Those who say the verbal nature of your agreement hurts your case are not correct. It may hurt your case in some jurisdictions, but in most instances a verbal contract is just as binding as a written contract.

As jacquilynne indicated, if you can get them to sign an acknowledgement letter you will convert this oral agreement into a written contract and be in a stronger position.
posted by naomi at 5:59 AM on December 13, 2005