Collect on a Promissory Note

A promissory note is a binding document signed by a borrower who is agreeing to repay any monies borrowed, with interest. A promissory note will state both the lender's and buyer's rights and responsibilities. Promissory notes are used for many varying types of loans including but not limited to student loans, bank loans, commercial loans and real-estate loans. After a promissory note is signed, the lender must know how to collect on a promissory note.

Steps

  1. Collect all documentation and information. Before beginning to collect on a promissory note, ensure all signed documentation is in place and has been thoroughly reviewed.
  2. Contact the borrower. As a first attempt to collect on the note, send a letter to the borrower asking for repayment. Include a copy of the promissory note with a statement of the amount due, the due dates and payment options. Ideally, the borrower will repay the promissory note as required. If not you will need to take further action.
  3. Hire an attorney. A promissory note is a legally binding agreement. If the borrower is refusing to repay the promissory note, legal action may be required.
  4. Use the attorney to send a collection letter to the borrower on your behalf. Sending a letter from an attorney will show seriousness and power. This may be enough of a threat to encourage the borrower to pay. If not, further legal action must be taken.
  5. File a suit against the borrower. The court in which you file will depend on the amount owed and circumstances under which it was borrowed. Research your local laws to determine the right court to file in.
  6. Enforce the court's decision. Once the court has filed a judgment in your favor the borrower will be forced to pay. The local sheriff's department may first try to enforce the judgment. If this is not successful, the court may garnish the borrower's wages.

Collect Through a Third Party

  1. Research and compare local collection agencies and collection attorneys to buy the promissory note. Buyers can be found online, in phone directories and through local banks. The buyer will purchase the promissory note for less than the total amount owed. You will be paid a lump sum for the sold note. The buyer will then try to collect on the promissory note from the original borrower.
  2. Contact the selected buyer/s. You may want to begin working with more than 1 buyer in order to compare and receive the best deal.
  3. Follow the buyer's instructions to send all relevant forms and additional requested information.
  4. Attempt to negotiate the price of the promissory note. Most companies have a standard they follow; your negotiated price may not be accepted.
  5. Finish the sale by signing any necessary paperwork and collecting on the note.

Tips

  • Have an attorney check any agreements made with a collection agency for hidden fees and loop-holes.

Warnings

  • Be prepared for a bit of a fight and time commitment when trying to collect on a promissory note.

Things You'll Need

  • Signed promissory note
  • Other related documents or information

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Sources and Citations