I wrote last week that folks who make personal loans that go unpaid should forgive their debtors. I advised letting go of any anger.
Well, I certainly opened a floodgate. Lots of readers had a question or comment on this subject. I thought that sharing some of the remarks might help if you're ever asked to lend money or if you're still pursuing a debtor.
Reader: When people borrow money from friends or family, they are responsible for it as any other loan. (Do) you advise your readers not to repay their mortgage or other loans?
My response: I didn't say forgive the debt. I said forgive the debtor -- if you want some internal peace. Holding onto anger because someone owes you money isn't going to make that person pay you back. I'm sure in many cases, the loan recipient is off enjoying his or her life and your money without giving you a second thought. If you need your money, don't stop trying to collect it. But at some point you have to let go of the negative feelings.
Reader: I granted a loan to my brother-in-law in the amount of $1,500 in December 2000. I took all the necessary precautions such as keeping the canceled check in which I clearly indicated the word "loan" in the memo. I also had my brother-in-law sign a promissory note. But guess what? I only received $800 of the $1,500. Should I take my brother-in-law to small claims court?
Response: It depends. Do you want to maintain a relationship with your brother-in-law more than you want the money? For some reason people don't like being dragged into court, even when they know (or should know) they are wrong. It's possible -- probably likely -- that if you take him to court it could get ugly. However, having said that, perhaps filing a claim might get your brother-in-law's attention. Maybe he will see that you thought his word meant something. Maybe then he will repay the loan without you having to have your day in court.
Reader: I was sorry to hear you advise to "never lend what you cannot afford to lose." My financial (fanny) has been saved three times now by loved ones willing to loan me money -- money they could ill afford to lose. Each time we had a written and signed agreement and payment plan.
Response: I think it is wise to draw up a loan agreement when lending to friends or family members. But as you see from one reader, having a promissory note doesn't mean your loved one is going to keep his or her promise. And here's another thought. Sometimes when you don't save someone, it forces them to make better financial choices. I stand by my advice -- don't lend what you can ill afford to lose.
Reader: Somewhat in jest, I respond to requests for loans by saying, "Do I look like a bank?" The old axiom "neither a lender nor borrower be" I think is applicable to family and friends. If someone needs to borrow money, let him or her go to a bank or credit union. Relationships are probably strained or lost more on money matters than anything else.
Response: I don't accept as true that we should neither be a lender nor a borrower. Life happens. People get into financial trouble. Often getting a loan from a bank or credit union is not an option. So people turn to the family and friends. If you can afford to either give or lend someone money when they are in need that's an admirable thing to do. Besides sometimes not lending a friend or family member money can cause as much friction as lending it and not getting it back. So understandably some folks feel it's worth the risk to lend the money rather than cause a rift in their relationship.
Reader: I loaned a "friend" $25,000 more than four years ago. So far, he has paid me about $2,500. He has not had the courtesy to call or write me about his financial situation. I am not bitter or angry with him, rather, at myself. Fortunately, through some heavy-duty prayer and meditation that negative stuff (stays) dormant until I am reminded of my foolishness, e.g., your column.
Response: Don't beat yourself up. Look, professional lenders have at their disposal sophisticated credit scoring systems to help them determine who will pay them back -- and still they get stiffed. There were 1.63 million consumer bankruptcies filed for the 12-month period that ended June 30. We expect people to honor their word and debts. But they don't and when they don't it doesn't necessarily mean you weren't a shrewd or cautious lender. Rather it's an indication of a person with a kind heart.