How to Collect a Personal Debt | Westgate Law

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Is Suing to Collect on a Personal Debt a Viable Option?

In the event that you loan money to a friend, family member, or acquaintance that fails to pay, there are a couple factors that need to be considered before you decide how to collect a personal debt.

  1. In most cases, you must sue within four years of the date you loaned the money or the date you last received a payment. This is referred to as the statute of limitations period. It’s the maximum amount of time after an event takes place that you can start legal proceedings in relation to that event. California’s statute of limitations is four years. This is the same with most states, but for those outside of California, you should check the statute of limitations applicable in your area. If you don’t commence legal proceedings within your state’s statute of limitations, you are barred from collecting the money through the courts.
  2. If you loan money to an individual who later moves out of states there are potential complications. The terms of the contract (if there is any in place) are based on the laws in the state in which you entered into the contract, but you have to enforce any judgment you receive in the state of the borrower’s current state of residency. If you obtain a judgment for non-payment in California, you would still have to get that judgment recognized in the state your borrower now resides. It’s not unheard of, but it takes time.

Both of these factors can make collecting the money loaned out difficult or even impossible to collect. In many instances, it comes down to the cost of enforcing the law. Trying to enforce your rights can be costly. In some cases, the costs associated with standing up for yourself in a court of law will ultimately exceed the amount of money you are attempting to recover from the recalcitrant borrower. It’s a sad reality when it comes to the legal system. The claim can be valid, but a lack of knowledge regarding the law, the court system and the necessary resources to complete the legal process leaves many very frustrated and seemingly out of options.

Individuals who have been “stiffed” on a personal loan sometimes find their best option for resolution through collection law firms. Some law firms of this type will take cases on a contingency – they sue on your behalf to attempt to recover the debt owed and receive a percentage of the total amount owed once it is received. If you go this route, you won’t get the entire amount of money you loaned out repaid, because some will go to the collection law firm, but you will get something back and you won’t have to handle the collection process on your own.

For more information on obtaining payment for personal loans, suing to collect on a personal debt, or California law contact the Southern California attorneys at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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