General overview
Informal loans are money you borrow from someone you know, such as a family member or friend. These loans are different from bank loans or credit cards. The agreement may be written or based only on a spoken promise. Because there is often no contract, or only a simple one, these loans can be harder to prove and collect in court.
An informal loan can become a debt just like any other type of loan. If you do not repay the money, the person who loaned it to you may ask for payment or file a lawsuit to collect it. This makes it important to keep any receipts, texts, messages, or written agreements related to the loan.
Legal protections
In Illinois, loans between family members or friends are generally treated like other debts. You have rights and protections even when the person trying to collect the money is someone you know. They must follow the law, which means they cannot threaten you, harass you, or use illegal methods to force you to pay. Only a court can order money to be taken from your wages or your bank account to be frozen.
If the person who loaned you money files a lawsuit, they must prove in court that you owe the money. Written notes, messages, or payment records may be used as evidence by either side. If they win the case, the judge may enter a judgment against you. This can lead to wage garnishment, which means money is taken from your paycheck, or the seizure of funds from your bank account, but only after the court process is complete.
Time limits and interest rate caps
A creditor generally has 10 years to sue based on a written agreement and 5 years to sue based on an unwritten agreement. The time is usually counted from the breach, such as a missed due date or payment. To qualify as a written agreement, the document must include all the important terms. A later written promise to pay or a partial payment may restart the time limit.
Illinois interest rules generally allow the parties to set an interest rate of up to 9% per year when the agreement is in writing. If there is no written interest rate, Illinois generally allows interest of 5% per year after the money becomes due. Interest charged above the legal limit may not be collectible.
Your options
If you cannot repay a loan from a family member or friend right away, you may have several options. You may be able to arrange a payment plan or agree to repay less than the full amount. Make sure to get any new agreement in writing.
If you are served with court papers, you can respond by filing an appearance and an answer with the court. Missing the deadline may make it easier for the other person to obtain a judgment against you. Even after a judgment is entered, you may be able to arrange payments based on what you can afford or ask the court to protect certain income and assets if you cannot pay.
You may also have legal defenses if you believe the debt is not valid, the amount is incorrect, or the other person cannot prove that the loan existed. Each case is different, and the court will consider the facts and the evidence provided by both sides.
Learn more
Loans between family members or friends can present special challenges. Personal relationships may make the situation emotional, and there may be little written documentation. Illinois Legal Aid Online (ILAO) has information about how to respond to a lawsuit for $10,000 or less.