Many people ask about money they have borrowed from relatives. I typically hear about how Mom lent the debtor two thousand dollars right before filing and it needs to be paid back.
I always ask my client “Did you sign a promissory note?”
“No.” is the typical reply.
“Is there a written contract that requires you to pay it back?”
“No.”
Well then. It is open to discuss whether it is a loan or a gift. When you take out a loan, there is usually something you execute in return, like a promissory note. It sets out the terms and times of when you will repay and what will happen if you don’t.
When Mom and Dad lend you money, although the word of Mom and Dad might carry more weight than the written word with you, legally, if there is no promissory note, there is only a gift of funds and not a loan.
This is an important thing to remember when dealing with money lent by parents. It is also an important thing for you to remember when loaning money to other people. If you don’t have a signed note setting forth the declaration that the borrow is obligated to repay the money, you have just given a wonderful gift, and the person who got it thanks you very much for the gift.
For bankruptcy, you must disclose all gifts of money received from people as well as gifts of money you have given in excess of certain dollar amounts.
Jay S. Jump
Jump Law Group
Washington State
253 479 0241
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