When you have a friend, family member or acquaintance that is facing serious financial struggles, it is human nature to want to help. However, if you decide to loan that person money, it is important to understand that you have two options:
- Consider the “loan” to be a gift and do not expect it to ever be repaid.
- Take the time to do the correct paperwork to evidence the loan and the obligation to repay you.
Why do I say this? If you loan money to your friend to purchase a motorcycle, you should document the transaction the same as a bank would. This means that your friend, family member, etc. should execute a promissory note and security agreement in your favor. You should also file any necessary lien documentation or notation on the certificate of title, as required by your individual state. As long as you are owed money, the motorcycle will serve as collateral for the loan. This documentation will also protect your interests if the person you lent money to should decide to file a Chapter 7 or Chapter 13 bankruptcy. It is also important to note that having your loan properly documented could help your friend, etc to be able to keep the vehicle if he does file a bankruptcy case. If a proper lien is recorded against the vehicle, it will be clear to the trustee that there is insufficient equity in the property to sell it for the benefit of the creditors. In short, it is wonderful to be able to help a friend out in theirs time of financial need. However, it is important to properly document the transaction which will protect both of you, especially if a bankruptcy filing is possible. We are bankruptcy lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. Contact our New Jersey law firm online by filling out the form or by calling 973-323-2953 to schedule a free initial consultation with an attorney at Levitt & Slafkes, P.C..