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Loaned money to a friend who refuses to pay it back? What are your rights?

It is common to turn to a friend or family member for support when facing financial difficulties. There are situations where you provide a loan, business services, or goods to someone who then fails to repay you. This individual could be a close friend, a client, or even a business entity. This unpaid sum creates a situation where the friend, client, or company becomes a debtor. This is where the process of debt recovery comes into play.

Importance of understanding your rights as a lender

Lending money to friends is often driven by a desire to help and support those close to us. However, this act of goodwill can sometimes lead to unexpected complications if the borrower fails to repay the borrowed amount. In such situations, understanding your rights as a lender becomes not only a matter of financial protection but also one of maintaining the integrity of your relationships. The understanding of rights is crucial for:

  • Financial Protection: By understanding your legal rights, you can better safeguard your financial interests. In the unfortunate event that repayment becomes an issue, knowing the available legal options can empower you to take the appropriate steps to recover your funds.
  • Clarity and Accountability: When you lend money, having a written agreement or even written communication about the loan’s terms can help avoid any misunderstandings and Being aware of your rights ensures that you have a clear roadmap to follow if repayment issues arise. Having a written loan agreement will also immensely help prove the existence of the debt in the eyes of the law as it is difficult to prove the existence of an oral or verbal agreement.
  • Preservation of Relationships: By understanding your rights and the potential courses of action, you can approach repayment disputes in a tactful and diplomatic This may open the door for negotiation, mediation, or alternative repayment arrangements that maintain the trust in the relationship and minimize conflicts.
  • Emotional Preparedness: Lending money to a friend and dealing with non-repayment can be emotionally Understanding your rights prepares you for potential challenges and allows you to approach the situation with a sense of preparedness and composure.
  • Empowerment and Confidence: Knowing your rights transforms you from a passive participant to an active decision-maker. When you are well-informed about the legal avenues available to you, you can confidently pursue appropriate actions, whether they involve amicable resolutions or legal remedies.
  • Legal Processes: Navigating legal processes can be daunting, especially when dealing with a friend or Understanding your rights in such situations helps demystify the legal procedures, making it easier to engage with legal professionals, if needed, and make informed decisions about whether to take legal action.
  • Education for Future Transactions: Your experience with lending money to a friend can serve as a lesson for future financial By understanding your rights and reflecting on your lending experience, you can make more informed decisions about when, how, and to whom you provide financial assistance in the future.


Overview of the article’s content

This article aims to provide a general outline of the potential steps available to lenders facing situations where individuals they know personally, such as friends or acquaintances, decline to repay their debts in Singapore. This article will cover both legal and non-legal alternatives, emphasizing the procedures and factors that need to be taken into account.

The Lending Agreement

  1. Importance of a written agreement

A solid foundation for a successful lending arrangement, particularly within the context of friends, is a well-crafted written agreement. Although verbal agreements might carry legal weight, they frequently present challenges in terms of enforceability, often leading to misunderstandings and disputes. A documented agreement offers transparency, responsibility, and a point of reference for all parties concerned.

In situations where funds are lent to a friend, emotions can influence judgment and recollection. A written agreement eradicates ambiguity and ensures that both parties have a shared understanding of the loan’s terms, encompassing repayment schedules, interest rates, and any collateral that might be involved. This proactive approach helps mitigate the likelihood of future conflicts and underscores a dedication to a fair and equitable transaction.

There are various agreements that can be executed to give legal sanctity to the loan facility including IOUs, Promissory Notes or a formal loan agreement.

         2. Elements of a valid loan agreement

These agreements should follow the basic elements of the contract law, and thus these agreements should reflect the elements of offer and acceptance, consideration and the intention to create legal relations between the parties. A written agreement is always preferred as the same came be attested as evidence by virtue of Section 93 of the Evidence Act, 1893.

  • What is an IOU?

Generally, an IOU is an informal contract and includes names of parties, amount of money/items loaned, repayment time, interest (if charged), security offered, parties’ and witness’ signature. A meticulously crafted IOU agreement, outlining the agreed-upon terms explicitly and bearing the signatures of both parties as well as witnesses, serves as an ideal foundation for initiating the process of recovering a debt.

  • What is a Loan Agreement?

A loan agreement or a promissory note is more of a formal contract. It functions with greater formality compared to an IOU. It documents the loan amount and debtor’s identity like an IOU does, but it extends its scope by incorporating further particulars like method of repayment, late payment penalties, purpose of the loan, governing law (jurisdiction), termination clause, dispute resolution clause, amendment clause in addition to elements of an IOU.

Attempting Communication with the Borrower

To address a loan repayment problem, start by calmly and respectfully discussing the matter with your friend, the borrower. Be mindful of possible misunderstandings or unexpected issues affecting their ability to repay. Express concern, listen attentively to their viewpoint, and offer empathy. Avoid accusatory language to encourage a productive and conflict-free conversation. While amicable dialogue is preferred, it is advised to maintain records of communication and other documents, which might include emails, texts, messages, or any other forms of correspondence. Keeping thorough records can provide important evidence and clarity if the situation becomes more serious.

When direct communication fails to produce a resolution, seeking mediation can prove effective. Mediation entails the involvement of an unbiased third party who facilitates discussions between the lender and borrower to find common ground. If parties opt for mediation, Singapore has one of the world’s best mediation practices. In a case where loan is offered to a friend or relative, parties may find it hard to negotiate with each other due to their social relationship, thus an impartial mediator can help in ensuring equitable consideration of both parties’ viewpoints. Mediation also guarantees confidentiality as the proceedings are generally private.

There are two major institutions that offer mediation services:

  • Singapore Mediation Centre
  • Community Mediation Centre


Legal Recourse for Unpaid Loans

It is essential to perform a thorough analysis of the loan amount and any accumulated interest before seeking legal remedies for unpaid loans. This thorough evaluation will provide a clear understanding of the precise debt owed, forming the foundation for potential legal actions and negotiations.

After evaluating, the creditor is advised to engage the services of a lawyer to dispatch a Letter of Demand to the debtor. This document clearly delineates the precise amount of indebtedness, the seriousness of the situation, and the legal ramifications of non- payment. This avenue is generally pursued to address evasive debtors, potentially prompting a response from the debtor. Notably, a letter of demand may subsequently be introduced as evidence in legal proceedings, substantiating the creditor’s efforts in seeking debt recovery.

If things don’t work out even after serving the Letter of Demand, one is advised to file a suit.

A creditor can commence civil proceedings against the debtor for recovery of debt. This approach is financially viable when the owed amount is substantial and the debtor possesses the means to repay but refuses to do so. In such cases, creditors can appoint a lawyer and upon successfully demonstrating the existence of the debt to the court, the court may issue a favourable judgment for the creditor and order for the repayment of the debt.

Implications of Personal Relationships on Legal Action

While initiating legal proceedings, personal relationships can be stressed. Therefore, it is essential to strike a balance between legal measures and maintaining personal relationships. Balancing this delicate equilibrium requires a deliberate assessment of the potential impact of legal measures on the existing personal relationship. Thus, an approach of amicably settling the matter should be adopted first, and mediation could be the best alternative to serve this approach.

Consider a case where Friend A lends money to Friend B for a business venture. Subsequently, Friend B faced challenges in repaying the debt when he encountered financial setbacks. Efforts to resolve the matter amicably failed, prompting Friend A to issue a formal letter of demand. Nonetheless, Friend A remains committed to maintaining the friendship and suggests mediation for the resolution of the matter. Ultimately, it may be possible for the friends to find a mutual compromise through mediated dialogue, adjusting the repayment terms accordingly to preserve both their legal rights and their personal relationship.

Bankruptcy and Insolvency Considerations

If the above methods fail or you are aware of the debtor’s financial situation or have reasons to believe that there is a low likelihood of repayment, you may consider making a bankruptcy application against the debtor. This method might work best for debtors who are facing extreme difficulties in managing their finances and require professional intervention.

Pursuant to Section 307 of the Insolvency, Restructuring and Dissolution Act 2018 (the “IRDA”), a creditor can file a bankruptcy application against the debtor, subject to the relevant conditions and requirements under the IRDA being met.

Prior to opting for bankruptcy proceedings, it is recommended to explore alternative pathways for debt settlement. This may encompass negotiation, financial restructuring, or devising viable repayment schemes. A nuanced comprehension of the potential consequences on the borrower’s credit and financial trajectory is pivotal for making well-informed decisions.

Filing for bankruptcy against a family friend or relative can have the potential outcome of straining your relationship with them. The declaration of bankruptcy brings forth significant consequences for the debtor which includes limitations on international travel, inclusion of the bankrupt’s name in the bankruptcy registry, as well as being subject to close oversight by the Official Assignee.

Ultimately, when determining the optimal approach for reclaiming a loan from a relative or friend in Singapore, it becomes essential to engage in a cost-benefit evaluation that encompasses the significance of your relationship with the debtor.


In the realm of lending money to friends and facing non-repayment, understanding your rights is pivotal. This knowledge equips you with the tools to navigate challenging situations while protecting your financial interests and relationships. From establishing clear agreements to considering legal avenues, the journey involves several crucial steps.

Seeking professional legal advice in such cases is a wise step. A lawyer can provide tailored guidance, ensuring you make informed decisions that align with Singapore’s laws and regulations. A lawyer can help you draft a loan agreement, an IOU, provide mediation services, and represent you in filing a bankruptcy application against the debtor.

Your rights as a lender extend beyond financial matters; they encompass the preservation of relationships, clarity in communication, and emotional preparedness.

By understanding your rights, you empower yourself to address loan repayment challenges with confidence and composure.

Navigating loans within personal relationships can be a delicate balancing act. As you strive to reclaim what’s rightfully yours, remember that understanding your rights serves as a cornerstone for making choices that safeguard both your financial investments and the cherished bonds you hold dear.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. For a Consultation or if you simply require more information, email us at


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