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How to ensure loan repayment?

New York, NY |

After loaning money to someone, how does one ensure repayment? I've been advised to self-draft an agreement, even if it's the most simple. What statements should be incorporated? How long should it be?

I made a typo. What I meant to say was, before lending money, how can I document it, and have strength in taking them to court, for repayment, upon an avoidance.

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Attorney answers 5

Posted

The agreement should have been done before the loan. Even if you had done it before there is no way to ensure re-payment... it depends if the person has assets you can attach if you have to sue.

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Posted

There is no guaranty that any loan will be repaid.

Posted

You can have any agreement you like with items pledged as collateral if you file UCC 1 and have a security agreement. However, if there is a default , then you will be acting like a bank and have a difficult time collecting. If the debtor files for bankruptcy, then you will be listed on the petition. Do not be a lender, let the bank do their job.

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Posted

The short answer is that lending money carries some inherent risk for the lender not getting paid back. The lender can minimize that risk by checking the borrower's credit worthiness before lending the money.

It's generally a good idea to have the loan terms reduced to writing, but the loan terms would depend on the purpose of the loan, and a few other factors. The type of loan will determine what, if any, security is appropriate. (For instance, a loan to help someone buy a car should use the car as the security, and a loan to help someone buy real property would use the land and/or buildings as security.)

This communication is intended only to provide general information. No attorney-client relationship is created.

Posted

A secured loan is the best way to be able recover money that someone else borrowed. The security interest should be worth at least as much as the money that was loaned (and not depreciate less than that over time). Generally a security interest is negotiated for up front, prior to loaning money and is memorialized in a stand alone security agreement. While a security interest does not guarantee repayment, it should allow the lender to recover the secured property in the event of default (which the lender can then sell for cash). You should consult with an attorney if you haven't already.