Collect on a Promissory Note
Along the continuum of types of contracts that impose an obligation on the borrower of money to repay a loan and the right of the lender to collect, a promissory note is somewhere in the middle; it provides more enforceability than an IOU, for example, but lacks the typical specific provisions for the lender’s recourse in the event of a borrower’s default as found in a loan contract. How to collect on a promissory note thus becomes the difficult issue.
The Terms of the Promissory Note
To be enforceable, a promissory note must be a valid contract. In addition to the threshold requirements necessary for any contract, most often a note will contain terms that indicate the:
- Amount of the loan
- Interest rate
- Maturity date or whether it is payable on demand
- Place and date of issuance
- Signature of the issuer or lender
Obtain a Judgment
In most circumstance, it is desirable and suggested to attempt informal requests and then a more formal demand letter to collect on the note. Assuming these prove unfruitful, a lawsuit for breach of a promissory note can be filed in the proper jurisdiction. Seldom are complaints on notes litigated, but in some cases the filing of the lawsuit may provide the impetus for a settlement. In most situations, however, a default judgment is obtained.
Enforce the Judgment
Once a judgment is in hand, it may be enforced by a number of means, such as wage garnishment, bank levy, seizure of assets or a lien against real estate. Among the damages that may be collectible include the unpaid balance on the loan, interest, court costs and attorney’s fees, plus whatever other damages that may have been specified in the note. It may be necessary to locate the assets of the borrower in order to determine which method or methods will be most effective.
Contact a Parsippany Commercial Litigation Attorney for Legal Advice
Understanding your rights and remedies when faced with the dilemma of how to collect on a promissory note begins with a telephone call to Snellings Law LLC at (973) 265-6100.