How Does Acknowledgment of Debt Work?

Do you intend to lend a large amount of money to a loved one? Establishing an IOU could be useful for you because it constitutes a guarantee of repayment.

By doing this, you protect your capital in the event of disagreement with your debtor. Here’s how debt recognition works if you want to learn more.

What is the recognition of debt?

The IOU is a handwritten or printed document that certifies a loan between a creditor and a debtor, and sets the terms of payment of the debt. It serves in a way to protect against a possible risk of non-repayment.

In the event of disappointment, said document will therefore allow the creditor to demand payment of the debt before the courts. The recognition of debt is a legal contract that can be drawn up before a notary or under private signature is indicated for loans between individuals. It therefore concerns two individuals who are not in a professional relationship.

The legal act under private signature is free. As for the notarial deed, it is chargeable and costs around one hundred euros for a loan of two thousand five hundred euros, plus seventy-five euros as registration fees. In addition, the recognition of debt is necessarily notarized for loans exceeding one thousand five hundred euros.

What are the steps to write an IOU?

To be admissible, the IOU must meet certain standards. The first step in its drafting consists in indicating the amount loaned (in figures and in full). You will then need to specify the deadline by which you want to recover your money.

If you have agreed to a repayment in installments with your debtor, remember to specify the due dates for each payment in the document. You must also specify the interest rate of the loan (which must not be higher than the one usually applied).

Obviously, the recognition of debt must provide your identity (surname, first name, and contact details) as well as that of the borrower. Your respective signatures must also be included.

If you have opted for the private deed, another step will be to have it registered. The recording of an act under private signature is optional, but in view of the security it confers, we strongly recommend it.

What are the possible remedies for the lender in the event of a dispute?

As a creditor, you can send a letter of formal notice to your debtor to call him to order. If you don’t get any response from him, then you can go to court.

If it is an acknowledgment of debt under private signature, you will have to go to court to be reimbursed. On the other hand, with a notarial act, you will only have to call on a bailiff to recover your money.

Note that for a loan exceeding ten thousand euros, the case will have to be dealt with by the tribunal de grande instance. You will therefore need to seek the services of a lawyer to recover your money.

Are there rules for peer-to-peer loans?

In accordance with the Civil Code, loans between individuals are partially subject to common law on loan contracts. Thus, any loan for an amount greater than seven hundred and sixty euros (with or without interest) must be declared to the tax authorities. Said declaration is to be made on the Cerfa N ° 2062 form which you can obtain from the tax office at your place of residence.

An undeclared loan is subject to a fine of fifteen euros which can climb to one hundred and fifty euros if you do not provide the documents requested by the tax authorities after fifteen days.

In the event of the death of the lender, the creditor has the right to defer the debt to his heirs who will have to pay it. Thus, the remaining amount of the debt (plus interest) will be entered as a liability of the estate.

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