Question: Last year, my cousin lost his job and asked me for a loan. I lent him two thousand dollars to help cover his mortgage. We didn’t discuss details about repayment or put anything in writing. After he got a new job, I asked him about repayment, but he blew me off. Apparently, he feels it was a gift; not a loan. How do I get repaid?
Answer: If he is unwilling to show character by voluntarily repaying you, you must take legal action. Your only reliable repayment enforcement option is a small claims lawsuit.
With an inexpensive filing fee, easy to complete paperwork and relatively quick turnaround time, small claims court allows a clerk magistrate to hear your dispute and hopefully order your cousin to repay the debt. You can expect him to claim the money was a gift.
The courts are used to these disputes and apply common sense reasoning in the absence of witnesses to the transaction or written proof of a loan. Factors like your history of giving such gifts, or the disparity of your income, will weigh on the court’s decision. The small claims judgment can be converted to an execution and filed against his real estate as a lien.
In the future, assuming you ever give such a loan again, formalize your transaction in writing. Even if scratched on a cocktail napkin, a loan agreement signed by both parties will provide a basis of your intentions to a court. A loan is still a loan, despite reference to details like interest, payment dates or amounts. For greatest ease, write some reference to the loan on the memo portion of your check. This can also be used as proof if needed.