Your money: When a handshake isn't enough

Sometimes a friendly loan can turn into a bad debt. Ian Hunter on how to get your money back
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The Independent Online
Lawyers will not be fantastically happy about this, but the total value of county court judgements (CCJs) in 1996 fell below pounds 1bn for the first time in several years. Though the potential loss of income from county court hearings may not suit the legal profession, according to experts it reflects well on both borrowers and lenders.

Jill Stevens, of CCN Credit Systems, a credit rating agency, says: "In general lenders and suppliers of goods and services on credit are being more careful about who they lend to, and people are also generally more aware of their responsibilities once they have their loan or have received goods or services."

But not all borrowers are aware of their responsibilities, as Richard Petersen discovered when an old friend, Tom Gentry, whom he had not seen for some time, asked to borrow pounds 300 for a holiday. When the money was handed over, Tom promised to repay it the following week.

Six weeks later, Richard had had plenty of excuses but no money. He decided to enlist the support of the small claims court to recover his money. In the small claims court, disputes involving claims up to pounds 3,000 can be resolved in a relatively informal atmosphere. In most cases, the services of a solicitor are not required and costs can be minimised.

Before considering legal action, a potential litigant should make sure that the defendant has any money worth pursuing. Richard knew that Tom lived with his parents and that if necessary they would settle the debt. Also, proceedings should only be started after every effort has been made to settle matters amicably. Once court action seems the only option the litigant should write to the defendant setting out the nature of the complaint and the proposed solution. This letter should threaten legal action if matters are not resolved.

Small claims proceedings are started by completing a county court application. The forms can be obtained from any county court. The application should be accompanied by the court fee, which varies according to the amount claimed. A summons is issued by the court and a case number issued. The defendant is given 14 days to reply. Once both sides have put their case, the court will arrange a hearing date.

Richard was fortunate. Once he issued proceedings, Tom arranged, through his parents, for the debt to be settled without the need for a hearing. In the end, all Roger had lost was a friendship...

But in many cases, obtaining judgment is not the end of the battle. If the defendant refuses to pay, it may be necessary to take enforcement proceedings. These can take a variety of forms, including obtaining an order for bailiffs to seize property equal to the value of the debt, or for pay to be deducted by instalments from the defendant's salary.

Warning against handshake loans, one lawyer said: "Often the greatest problem with debt recovery, especially where friends or families are involved, is satisfying a court that anything is due in the first place." If a loan is made by cheque a copy should be retained. Or the debtor should be asked for a receipt confirming the amount owing and the agreed repayment date. Another option is to get a cheque post-dated to the agreed repayment date. Then, if the cheque should bounce, the lender has evidence of borrower liability.

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