If someone owes you money and refuses to pay, you have a clear legal path: gather proof of the debt, send a written demand for payment, file a lawsuit in small claims court if the demand is ignored, and then use court-ordered tools like wage garnishment, bank levies, or property liens to collect on the judgment. Knowing what you can do legally if someone owes you money also means knowing the limits — deadlines to sue, caps on how much a court will hear, and what happens if the debtor files bankruptcy or simply has nothing to take.
The steps below follow that path in order. How far you need to go depends on how the debtor responds at each stage.
Build Your Proof Before You Do Anything Else
Everything downstream depends on whether you can prove the debt. The strongest evidence is a written, signed document — a promissory note, a loan agreement, even a simple IOU identifying the parties, the amount, and the repayment terms. If you have that, your case is straightforward.
Most personal loans between friends or family don’t come with a signed contract. That doesn’t sink you. Texts, emails, social media messages, and voicemails where the borrower acknowledges owing you money carry real weight. A message that says “I know I owe you $2,000, I’ll pay you back next month” does a lot of work in a courtroom. Save these in more than one place: screenshots, cloud backups, printed copies.
Bank records showing you actually sent the money strengthen the case further. A Venmo, Zelle, or wire transfer record corroborates your claim. Bounced checks and unpaid invoices function the same way. A third-party witness to the loan agreement can also help, though a paper trail is more reliable than someone’s memory.
For digital evidence, you generally need to show it’s authentic — that the phone number belongs to the borrower, that the conversation hasn’t been altered, and that you were part of it. Screenshots from your own phone are usually enough in small claims court, where the evidence rules are more relaxed than in higher courts.
Send a Formal Demand Letter
Before filing anything, send a written demand letter. Two reasons: it sometimes shakes a payment loose from someone who didn’t realize you were serious, and it creates a paper trail showing you tried to resolve things before heading to court. Some judges look more favorably on plaintiffs who made a real attempt to settle first.
The letter should include the date, the debtor’s full legal name and address, the exact amount owed, and a brief factual explanation — when the loan was made, what was agreed, and what has or hasn’t been paid. Set a clear deadline (two weeks is standard), tell the debtor how to pay, and state plainly that you will file suit if payment doesn’t arrive by that date.
Send it by certified mail with a return receipt so you have proof of delivery. Keep a copy of the letter. The receipt becomes part of your evidence later.
One boundary worth knowing: the federal Fair Debt Collection Practices Act, which restricts harassment and deceptive tactics during debt collection, generally does not apply to individuals collecting their own debts. It covers third-party debt collectors like collection agencies and debt buyers.1Consumer Financial Protection Bureau. What Laws Limit What Debt Collectors Can Say or Do Even so, keep your communications professional and factual. Threatening, profane, or repeated harassing contact could expose you to liability under state laws.
Check the Statute of Limitations
Every state sets a deadline for filing a lawsuit to collect a debt. Miss it, and the court will almost certainly dismiss your case no matter how strong your evidence is. These deadlines typically run three to six years for oral agreements and four to ten years for written contracts, but the exact period depends on your state.
The clock usually starts when the borrower missed a payment or breached the agreement. Here’s what trips people up: in many states, certain actions can restart the clock. A partial payment or a written acknowledgment that the debt is still owed may reset the full statutory period from that new date. That can work in your favor as the creditor — a $50 payment three years in might buy you another full period — but the restart rules vary by state.
If you’re not sure whether the deadline has passed, check with your local court clerk or an attorney before filing. A filing fee on a time-barred claim is money you won’t see again.
Filing in Small Claims Court
Small claims court is designed for disputes over relatively modest amounts, and the process is streamlined so ordinary people can handle their own cases without a lawyer. State monetary limits currently range from $2,500 at the low end to $25,000 at the high end. If you’re owed more than your state’s limit, you can either waive the excess and sue for the maximum, or file in a higher civil court where the process is more complex and usually requires an attorney.
You generally need to file where the debtor lives or where their business operates. Filing in the wrong court gives the debtor grounds for dismissal, so confirm jurisdiction with the clerk’s office or the court’s website before you submit paperwork.
Completing and Filing Your Claim
The paperwork is straightforward: the debtor’s full legal name and current address, a clear calculation of the amount owed (including interest or fees if your agreement allows them), and a concise explanation of why the money is owed. Most courts post the forms online, and many allow electronic filing.
Filing fees range by jurisdiction and claim size, typically from about $30 to over $300. Many courts waive the fee for financial hardship. Keep your receipt — if you win, you can usually recover this cost as part of the judgment.
Serving the Defendant
After filing, the debtor must be formally notified through service of process. You cannot deliver the papers yourself. Acceptable methods usually include the local sheriff’s department, a private process server, or certified mail with return receipt, depending on your court’s rules. Ask the clerk which methods your court accepts. Once service is complete, file proof of delivery — the case can’t move forward without it.
Mediation Before Trial
Many small claims courts offer free or low-cost mediation, and some require it before a hearing. A neutral third party helps you and the debtor try to reach a resolution. An agreement reached in mediation is binding and enforceable like a court judgment. If mediation fails, the case moves to trial. Ask the clerk whether mediation is available or required when you file.
What Happens at the Hearing
Small claims hearings are informal. There’s no jury. A judge or magistrate hears both sides and often decides the same day. Bring everything: the signed agreement or promissory note, your demand letter and certified mail receipt, bank statements showing the transfer, text messages or emails acknowledging the debt, and a witness if you have one.
Stick to the facts. Explain when the loan was made, how much, the repayment terms, and what has or hasn’t been paid. The judge may ask questions. If the debtor shows up and disputes the claim, they’ll get a chance to tell their side.
If the debtor doesn’t appear at all, the court will typically enter a default judgment for you, usually for the full amount plus court costs. The debtor can later ask the court to set the default aside, but they’d need a legitimate reason for missing the hearing, such as never receiving the lawsuit papers. This is why proper service matters so much. Solid proof of service makes a default judgment very hard to overturn.
Collecting After You Win
Winning gives you a judgment — a legal declaration that the debtor owes you money. It does not give you cash. The court won’t collect for you, and this is where many people’s victories stall. If the debtor doesn’t pay voluntarily, you have to force collection.
Judgments don’t last forever. Most states allow enforcement for five to twenty years, and many let you renew the judgment before it expires. Don’t let one quietly lapse while you wait.
Finding the Debtor’s Assets
Before you can garnish wages or hit a bank account, you need to know where the debtor works and banks. If you don’t have that information, ask the court for a debtor examination. The debtor is placed under oath and required to answer questions about income, bank accounts, real estate, vehicles, and other property. A debtor who ignores the court’s order to appear can be held in contempt and face a bench warrant.
Wage Garnishment
Wage garnishment takes a portion of the debtor’s paycheck before they ever see it. You get a court order — often called a writ of garnishment or writ of execution — and have it served on the debtor’s employer. The employer then withholds money from each check and sends it to you until the debt is paid.
Federal law caps garnishment for ordinary debts at the lesser of 25% of the debtor’s disposable earnings for that week, or the amount by which those earnings exceed 30 times the federal minimum hourly wage — whichever produces the smaller garnishment.2Office of the Law Revision Counsel. 15 U.S. Code 1673 – Restriction on Garnishment Some states set even lower limits. A debtor earning close to minimum wage may be effectively judgment-proof because their income falls below the protected threshold.
Bank Levies
A bank levy lets you seize funds directly from the debtor’s bank account. You get a court order, serve it on the bank, and the bank freezes the account and turns over available funds up to the judgment amount. Levies can be more effective than garnishment for grabbing a lump sum, but they only capture what’s in the account when the levy hits. A debtor who keeps a low balance may force you to try more than once.
Property Liens
Recording your judgment as a lien against the debtor’s real estate is a long-game play. The lien attaches to the property and prevents the debtor from selling or refinancing without paying you first. You won’t see money right away, but the lien sits there until the property changes hands. Under federal law, a judgment lien on real property lasts 20 years and can be renewed for another 20.3Office of the Law Revision Counsel. 28 U.S. Code 3201 – Judgment Liens State lien durations vary and are often shorter. Recording fees are modest, typically under $100.
Post-Judgment Interest
Most states allow interest to accrue on an unpaid judgment from the date it was entered until the debtor pays. Rates vary — some states use a flat statutory rate, while federal courts tie the rate to the weekly average one-year Treasury yield.4Office of the Law Revision Counsel. 28 U.S. Code 1961 – Interest Interest adds up and gives the debtor a reason not to drag their feet.
If the Debtor Files Bankruptcy
If the person who owes you money files for bankruptcy, your collection efforts stop immediately. Federal law imposes an automatic stay the moment the petition is filed, halting lawsuits, garnishments, levies, and any other collection action against the debtor.5Office of the Law Revision Counsel. 11 U.S. Code 362 – Automatic Stay Violating the stay, even by calling to ask about payment, can result in sanctions against you.
To have any shot at recovering money through the bankruptcy, you need to file a proof of claim with the bankruptcy court. That’s a formal document stating how much the debtor owes you, with supporting documentation like the promissory note or other evidence of the debt.6Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3001 – Proof of Claim Watch the court’s deadline. Miss it and you may be shut out entirely.
The hard truth: most unsecured personal loans are dischargeable in bankruptcy, meaning they get wiped out when the debtor receives a discharge. Certain debts survive — taxes, student loans, child support, and debts obtained through fraud, among others — but a straightforward personal loan between friends or family typically does not. If the bankruptcy case goes through, you may collect pennies on the dollar, or nothing.
Writing Off a Truly Uncollectible Debt
If you’ve exhausted your options and the debt is genuinely uncollectible, you may be able to claim a tax deduction. The IRS treats an uncollectible personal loan as a nonbusiness bad debt, reported as a short-term capital loss on Form 8949.7Internal Revenue Service. Topic No. 453, Bad Debt Deduction A few requirements apply.
First, the debt has to be totally worthless. You can’t deduct a partially uncollectible loan. Second, you must show the money was a genuine loan and not a gift. If you lent money to a relative with the understanding they might never pay it back, the IRS considers that a gift.7Internal Revenue Service. Topic No. 453, Bad Debt Deduction Third, you need to show you took reasonable steps to collect, though you don’t necessarily have to sue if you can show a judgment would be uncollectible anyway.
You can only take the deduction in the tax year the debt becomes worthless. When you file, attach a statement describing the debt, the amount, the debtor’s name, your relationship, what you did to collect, and why you concluded it was worthless.7Internal Revenue Service. Topic No. 453, Bad Debt Deduction
Because this is a short-term capital loss, it’s subject to the annual capital loss deduction limit of $3,000 per year ($1,500 if married filing separately).8Internal Revenue Service. Topic No. 409, Capital Gains and Losses Anything beyond that carries forward to future tax years. A $10,000 uncollectible loan would take several years to fully deduct unless you have capital gains to offset it against.