Loan with no contract leaves a friend in a bind when the borrower won't repay.

Q: A friend of mine last year loaned a considerable sum to a co-worker who was in a financial bind. That person hasn't paid anything back. This was a verbal deal, as it was thought to be one friend helping another. My friend filed suit in one of the justice of the peace courts, and it's looking like she will win this suit with a default judgment. How can my friend collect? Can the borrower be jailed?

A: Your friend will likely find that it is difficult, if not impossible, to collect on a judgment like that.

Under the laws of Texas, most people are judgment-proof because a homestead, retirement plans, IRAs, life insurance policies, annuities, 529 education accounts and $50,000 worth of personal property are all exempt. For married couples, the $50,000 figure for personal property doubles to $100,000.

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Your friend's decision to loan money to someone who was having financial problems, without a written promissory note and without any property pledged to secure the loan, was a terrible idea. Your friend may have had good intentions, but she made a very poor financial decision. In all likelihood, the loan was effectively a gift that will never be repaid.

Assuming your friend does win the suit, she could file an “abstract of judgment” in each county where the borrower owns real estate (if that person does, in fact, own any real estate). That will give your friend a lien for 10 years on all real estate the borrower owns in each county where the abstracts are filed.

An abstract of judgment generally only works on nonhomestead real estate because you can’t force a person to sell a homestead. Having a lien against a homestead allows you to collect only if the person sells the home and does not reinvest the proceeds in a new homestead. A lien against nonhomestead real estate may allow your friend to force a sale and get paid.

In addition, the court can issue a “writ of execution” instructing the sheriff or constable to try to collect the money. The sheriff or constable can seize and sell some of the borrower’s personal property. But since Texas is so debtor-friendly, there is a good chance there is nothing to seize.

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Your friend could also file a “writ of garnishment,” which allows money to be taken from the borrower's bank account. However, this type of writ only works in limited circumstances, and wages may not be garnished in this type of matter.

The person who borrowed the money will not go to jail, as the failure to repay a loan is not a crime.

The information in this column is intended to provide a general understanding of the law, not legal advice. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to: stateyourcase@lipmanpc.com.

QOSHE - Friend's loan to deadbeat borrower leaves her in a bind - Ronald Lipman
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Friend's loan to deadbeat borrower leaves her in a bind

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12.03.2024

Loan with no contract leaves a friend in a bind when the borrower won't repay.

Q: A friend of mine last year loaned a considerable sum to a co-worker who was in a financial bind. That person hasn't paid anything back. This was a verbal deal, as it was thought to be one friend helping another. My friend filed suit in one of the justice of the peace courts, and it's looking like she will win this suit with a default judgment. How can my friend collect? Can the borrower be jailed?

A: Your friend will likely find that it is difficult, if not impossible, to collect on a judgment like that.

Under the laws of Texas, most people are judgment-proof because a homestead, retirement plans, IRAs, life insurance policies, annuities, 529 education accounts and $50,000........

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