Dear Penny,
About two years ago, my partner agreed to help financially one of his best friends. The best friend convinced my partner to take back his student loan. The friend promised to pay off the debt to my spouse every month.
The debt is in the form of a bank draft. Each month, the payment comes out of our account. Unfortunately, the friend is several months late with what appears to be no intention of paying. Any advice for a promise gone wrong?
-VS.
Dear c.,
Unfortunately, when your husband took over his best friend’s loan, he became legally responsible for this debt. This means he’s on the hook for payments. If your husband fails to do them, he will destroy his credit rating and could even be sued.
My advice here depends on two factors: First, are your husband and his best friend still on good terms? Second, is his friend struggling to make ends meet? Or do you think his friend can afford to pay you back but chooses not to?
Your husband might try to blame them if they are still on good terms. He might say the money is running out because he is paying off his friend’s loan and ask when he can resume his payments. Your husband may suggest that you take lower payments and extend the loan for a longer repayment period. If his friend agrees, that means some of that money would keep coming out of your pockets every month. But in this case, getting something is better than nothing.
If it still isn’t getting anywhere – or if they already aren’t talking – it’s time to raise the stakes. I don’t know if this friend promised in writing to repay the loan or if your husband took his word for it. Ideally, your husband would have had his friend sign a promissory note so that you have a legally enforceable document.
Either way, your husband can exert some pressure. He can use a website like RocketLawyer or UpCounsel to find a free letter of formal notice template. He should write that if his friend does not resume payments as agreed by a certain date, he will be forced to sue him. He must send it by certified mail.
Sending a formal notice doesn’t necessarily mean your husband has to sue his best friend, of course. But sometimes people don’t reimburse their friends and family because they think there are no consequences. Your husband may get his friend’s attention by warning him that he might face repercussions.
Even if your husband doesn’t have a signed promissory note, it can be helpful to talk to a lawyer about whether suing his friend is an option. If your husband has received texts or emails from his friend agreeing to reimburse him, he may be able to use them as proof if he chooses to proceed. Of course, chasing your best friend will end the friendship. But I certainly wouldn’t want to be friends with someone who would abuse such generosity.
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The other question here is whether it would be worth taking legal action. You don’t say how much money is at stake or what the financial situation of your husband’s best friend is. If you know he’s dead broke, getting judgment can be meaningless. Remember the old saying about trying to squeeze blood from a turnip?
You and your husband could end up bearing the costs of this promise gone wrong. But there are certainly lessons you can take to move forward.
I guess your husband agreed to put the loan in his name because he might qualify for a lower interest rate. Maybe it seemed like an easy way to help a friend, since your husband clearly trusted him to make the payments. But in situations like these, you never want your name on the loan, whether as the primary borrower or as a co-signer. I would much rather help someone with high interest payments by giving them money.
The other big lesson is that whenever you help a friend or family member by signing a loan, you have to do it with the hope that you will make those payments. This can be difficult for some people to accept. You know you would never break a promise to repay someone dear to you, but you can’t assume the other person shares your values.
No matter how you and your husband deal with this friend, you both need to make a pact. Neither of you will ever take legal responsibility for someone else’s debt. If you want to help a friend in the future, only do so with money you can afford to save.
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Robin Hartill is a Certified Financial Planner and Senior Writer at The Penny Hoarder. Send your sensitive money questions to [email protected].
