We’d all like to think money is there to be enjoyed, but sometimes things go wrong.
A common situation people find themselves in is lending to a friend or family member. The odd tenner here and there might not a problem (depending on your outlook), but if a larger amount of money is involved, things can quickly become acrimonious. Many a friendship has been scuppered on the rocks of the IOU. You are probably more vulnerable to this sort of situation than you think.
For starters, as the cost of borrowing increases, people are perhaps more likely to seek assistance from people they know well, rather than go immediately to their bank. If you do then get a knock at the door, you may feel it harder to say no. Seeing friends or loved ones in financial difficulty isn’t easy. Helping them might understandably be your first instinct.
Weighing it up
Lots of options are available to you, central among them the obvious one that you say no. If you do decide to proceed, however, several things can happen.
Let’s just assume for a second that your friend has asked for a loan of £1,000 to settle a bill that is crippling their finances. Sensing the weight of the situation, you decide to help, on the proviso it be repaid within a year.
You don’t have a contract agreeing this per se, but, having started the conversation on WhatsApp, there is an electronic log of your friend's request, and a skeleton agreement both parties are ostensibly happy with.
The ideal situation is naturally that your friend pays the money back. The even-more-ideal situation is that they pay it back early, having garnered enough cash to settle up. You are legitimately impressed, and the episode gradually confines itself to the history books. Alas, in this example, that has not happened.
In our case study, your friend has missed the payment deadline you agreed, and is now not answering calls or texts. Colloquially, you may very well feel pretty mugged off.
Hold Your Horses
Whether you decide to pursue the matter or not, the first sensible thing is to review the original agreement you struck up. If you haven’t already, you’ll find yourself screenshotting WhatsApp conversations and emailing the images to yourself so you can be sure of not being gaslit should a conversation about the matter eventually occur.
If you're feeling sufficiently mugged off to take it further, you may consider writing to your friend formally to request the return of the money. This is known as a letter before action, and it typically offers the debtor a summary of the loan agreement, a reasonable timeframe for repayment (seven days minimum), and the assertion that, if the money is not forthcoming, you may pursue the matter through the courts.
Careful though; it may be unwise to pen such a letter unless you are fully willing to follow through on your threat of legal action. Escalating the matter in this way requires serious thought, and it will cost money. Be clear on the consequences for all sides.
The Middle Ground: Mediation
In the event you feel making a court claim is hasty, another option is available. Just as divorces can be settled out of court through mediation, so too can financial disputes between friends, families, and businesses.
The government highlights the existence of the Civil Mediation Council (CMC) for this very purpose, and its role is not just to help parties in disagreement resolve their issues. A charity founded in the UK in the early 2000s, the CMC is run by a 13-strong board of directors, and is there to help people in the workplace, business and at home.
Mediation is a confidential process, so if you invite your friend to participate and they agree, your conversation with the mediator will remain private. Mediators are trained to remain impartial, though they may provide each party with legal information pertinent to the situation at hand. They do so from a neutral standpoint, and, crucially, with no financial interest in the outcome.
In civil and commercial mediation, offers can be made "without prejudice." This means that, should the matter eventually end up in court, prior offers of settlement cannot be used to influence proceedings.
During personal mediation, any prior legal processes are put on hold. You and your friend may still opt to go to court to battle it out, but neither of you will be able to use information that emerged from the mediation process (such as a personal revelation from the past) to buttress your positions.
Finally, it’s worth noting that a court is less likely to award you costs if there is no evidence of efforts to resolve your dispute outside of court. Keep that in mind.
Ending it in Court
Back to our scenario. Let’s just say you are so mugged off about your friend’s behaviour you decide that court is the only option. In years gone by, people have often referred to the "small claims court" as a means of resolving issues such as these.
Nowadays, however, the proper legal process is simply known as “making a court claim.” Court claims are typically made to a county court. This is where your screenshots (and any other evidence) will come in very handy indeed.
If you pursue this option, you will have to pay a fee. The higher the claim, the higher the fee (see table below). People on low incomes can get assistance with paying their fees. Claims can be made online, provided the claimant knows precisely how much they are owed.
The claims process also allows you to claim interest. Businesses may do this through late payment fees baked into their contracts, but where private individuals are concerned, there is a formula for working out your interest, which is usually set at 8%.
Because your friend owes you £1,000, the annual interest would be £80. To establish the daily interest, you would divide £80 by 365, then multiply by however many days the payment is overdue.
When you’ve submitted your claim, your friend (now a "defendant") must respond. If they pay up, you will need to notify them that you have received the money. In most cases that can be done online. If your friend still refuses to pay, though, you can ask the court to order them to cough up. You may have to go to a hearing if they still dispute the figure you claim you owe them, or if they reject the claim in the first place.
If a hearing takes place, you have the option of representing yourself, or paying the fees for a solicitor. Decisions are typically forthcoming on the day of the hearing.
If you win, the court can order the collection of payment, and that may come through the seizure or sale of assets. If it so happens your friend has convinced the court your claim is illegitimate, you can appeal the decision, but you must do so within 21 days.
Moving on
Whether you decide to go to court, pursue mediation, or simply write the debt off in your head, difficult conversations await you.
Few friendships would survive the first option, though you may think the money more important to you than the person themselves by that point.
With mediation, there is arguably a greater chance of increased understanding, and potentially some form of financial compromise, but there is also the risk that the process breaks down and you end up in court anyway.
Knowing that both processes are likely to be in some way ugly, you may just decide to write the debt off in your head and strike your friend’s name from your Christmas card list. That will cost you the money, though happiness can sometimes be expensive. At the end of it all, you may just resolve to get better friends. It just be the toughest lesson of all.
