QUESTION
Is my loan agreement binding in small claims court
Asked on Jun 27th, 2013 on Contracts - Maryland
More details to this question:
A co-worker of mine needed to borrow some money. I lent it to him and afterwards decided I should get him to sign an agreement to pay me back. The agreement includes the amount he borrowed, the date he needed to pay me back without interest and other stuff like he would pay any legal fees should we go to court, 20% interest per month accrued daily if the loan wasn't paid back by April 30th. We both signed it and also had witness sign it. He has only paid me back $500 (last week and had the nerve to ask me for $400 yesterday). He keeps telling me he'll pay me back on (fill in date here) but never comes through. Top it off, he went out and purchased a 2011 car last week and tells me all about it. I was thinking if he paid me by the end of June, I'd let him off and not charge interest but I really think I have to take him to court. Should I be worried the contract won't hold up? He doesn't have much money (supposedly) and could declare bankruptcy but agreement covers that too. Thank you!
1 ANSWER
I believe you have some problems. First, unless you got security for your loan (i.e. a lien on some property of his to secure repayment) I don't see how your agreement could "cover" a bankruptcy. If the debtor is legitimately insolvent and files bankruptcy, and assuming there was no fraud in connection with the loan, his debt to you will be discharged and you, along with all other unsecured creditors, will only receive your pro rata share of whatever money can be raised by liquidating the debtor's assets, probably very little. Also, 20% interest per month is usurious, probably in every state in America, and may invalidate the entire agreement, or, if not, at least the interest part of it. I don't know the allowable interest rate in Maryland, but in New York it is only 16% PER YEAR (for individual debtors; 24% for corporations), nowhere near the more than 240% you are charging.
Answered on Jun 28th, 2013 at 12:03 PM