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Dear Dr. Don,
I provided a loan to a family member without a written agreement. It was my mistake. Now this person refuses to pay the money back. What can I do to get the loan repaid?
— Exasperated Elsie

Dear Elsie,
Oral contracts can be enforceable. Whether that holds true in your case depends on the agreement when you made the loan. Steve Bucci, Bankrate’s Debt Adviser, states that an oral agreement is considered legally enforceable if it meets certain conditions:

  • It must contain essential contractual terms.
  • The terms must be sufficiently precise to allow for enforcement.
  • All essential terms must be identified and not left to future agreement.

In your case, I suggest that you speak with an attorney. He or she will know what, if anything, makes an oral contract binding in your state.

You didn’t say how much money is at stake. If it’s a relatively small amount, you might be able to take the relative to small-claims court. Case limits vary among states, but most set the limit between $5,000 and $10,000.

Winning the case won’t necessarily put money in your pocket right away. You will still have to collect the funds. If your family member won’t pay, then you may have to seek garnished wages, a lien on their property or attach a bank account.

If you’ve let this slide for a while, the statute of limitations might prevent enforcement of your loan agreement. The Bankrate feature “State statutes of limitations for old debts” provides a listing of the statutes of limitations for every state with a separate category for oral contracts.

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