If someone owes you money and won’t pay, you have real options: gather proof of the debt, send a formal demand letter, and if that doesn’t work, sue in small claims court and use tools like wage garnishment, a bank levy, or a property lien to actually collect. What to do if someone owes you money comes down to how well you can document the debt and how willing you are to work through each step in order. The stronger your paperwork, the stronger every option below becomes.
Start by Documenting the Debt
Before you send a letter or file anything, pull your evidence together. A signed written agreement or promissory note is the strongest proof because it spells out the amount, the repayment terms, and both sides’ commitments. Unpaid invoices, especially ones you sent more than once, also build a clear record.
Less formal materials count too. Save emails, texts, and social media messages where the person discussed or acknowledged the debt. A bounced check is useful because it shows an attempt to pay that failed. Bank statements showing the transfer, and statements from anyone who witnessed the loan or agreement, round out the file.
Put it all on a timeline: when the agreement was made, when payments were due, which were missed, and every follow-up you attempted. That timeline is your roadmap whether you end up writing a letter, handing the debt to an agency, or standing in front of a judge.
The Statute of Limitations Is Ticking
Every debt has a legal deadline for filing a lawsuit. Once that window closes, you lose the right to sue even if the debt is completely legitimate. For written contracts, the period runs about 3 to 15 years depending on your state. Oral agreements are shorter, typically 2 to 10 years. The clock usually starts on the date payment was due or the date of the last voluntary payment.
One quirk worth knowing: in many states a partial payment or a written acknowledgment of the debt restarts the clock entirely. In others, it only pauses it. So a $50 payment on a $5,000 debt could either give you a fresh window or extend the current one, depending on where you live. Check your state’s rule before you assume anything, and don’t sit on the debt. The longer you wait, the closer you get to losing your right to pursue it at all.
Send a Formal Demand Letter
A written demand letter does two things at once. It sometimes shakes the money loose on its own, and it shows a judge you tried to resolve the matter before filing suit. Keep it professional and direct. Aggressive or emotional language weakens your position.
Include your name and address, the debtor’s name and address, the exact amount owed, a short history of the debt referencing the original agreement or invoice, and a clear calculation of any interest or late fees your agreement allowed. Attach copies of the key evidence. Set a firm deadline, usually 14 to 30 days from the date of the letter. State plainly that you’ll pursue legal action if payment doesn’t arrive by that date.
Send it by certified mail with return receipt requested. That receipt proves the debtor got the letter and becomes part of your evidence if the case ends up in court.
Try Mediation or a Collection Agency First
Court isn’t the only path if the demand letter doesn’t work. Two alternatives are worth weighing before you file.
Mediation uses a neutral third party to help you and the debtor negotiate. Many courts offer free or low-cost mediation, and some suggest it before scheduling a hearing. Nothing is given up by trying: if it fails, you still file. The upside is speed and flexibility, since a mediator can help craft a payment plan or partial settlement both sides can actually live with.
A collection agency hands the problem off entirely. Most work on contingency, taking somewhere between 20% and 50% of what they recover. The older and harder the debt is to collect, the higher the cut. This route makes sense when the debtor isn’t disputing the debt but simply refuses to pay, and when the amount is large enough that recovery after the agency’s fee is still worthwhile.
File in Small Claims Court
If informal efforts don’t work, small claims court exists for exactly this kind of dispute. It’s simpler and cheaper than regular civil court, and in most places you handle the case yourself without a lawyer.
File in the district where the debtor lives or where their business operates. Confirm the amount falls within that court’s monetary limit. Limits vary a lot: most small claims courts handle disputes under $10,000, though some cap out as low as $2,500 and others go up to $25,000.1National Center for State Courts. Understanding Small Claims Court If you’re owed more than the cap, you’ll need a higher civil court, which usually means more complex procedures and possibly a lawyer.
The filing forms are usually called a Plaintiff’s Claim or Complaint and are available on the court’s website or from the clerk. You’ll need the debtor’s full legal name and current address, a precise dollar amount, and a short explanation of why the money is owed.
Filing Fees and Serving the Papers
File in person, by mail, or through the court’s electronic portal if it has one. Filing fees vary but usually run $30 to $100. If you can’t afford the fee, many courts offer waivers based on income.
Once the clerk processes the filing, the court assigns a case number and issues a summons. The debtor has to be formally served with the papers, and you cannot do that yourself. Depending on the court, service is handled by a sheriff or marshal, a professional process server you hire, or in some courts by the clerk sending papers via certified mail.2California Courts. Serve Your Small Claims Forms There’s a small additional fee for service. Once served, the court sets a hearing date.
At the Hearing
Both sides present their case to a judge. Bring everything: the original agreement, your demand letter and certified mail receipt, bank statements, texts, and any witness who can back up your account. Small claims hearings tend to be informal and fast, often under 30 minutes. The judge may rule from the bench or mail the decision shortly after.
Collect the Judgment After You Win
Winning and getting paid are two different things. The judgment legally confirms the debt, but it doesn’t force money into your hands. You, as the judgment creditor, do the collecting. If the debtor won’t pay voluntarily, several enforcement tools are available.
- Wage garnishment. A court order directing the debtor’s employer to withhold part of each paycheck and send it to you. Federal law caps garnishment for consumer debts at 25% of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever leaves the debtor more take-home pay.3U.S. Department of Labor. Fact Sheet #30 – Wage Garnishment Protections of the Consumer Credit Protection Act4Office of the Law Revision Counsel. 15 U.S. Code 1673 – Restriction on Garnishment
- Bank account levy. A legal order that lets you seize funds directly from the debtor’s bank account.5Consumer Financial Protection Bureau. Can a Debt Collector Take or Garnish My Wages or Benefits?
- Property lien. A claim recorded against the debtor’s real estate that prevents them from selling or refinancing without paying you first.6Legal Information Institute. Judgment Lien
To use any of these, you generally need to know where the debtor works or banks. If you don’t, ask the court for a judgment debtor examination, a court-ordered proceeding where the debtor must appear and answer questions under oath about income, accounts, real estate, and other assets. That information feeds directly into your next enforcement filing.
Your judgment also earns interest from the day it’s entered until it’s paid. In federal court the rate is based on the weekly average one-year Treasury yield, hovering around 3.5% in early 2026.7Office of the Law Revision Counsel. 28 U.S. Code 1961 – Interest States set their own rates, and some are considerably higher.
Judgments last a long time. Most states allow enforcement for 10 to 20 years, and many let you renew before expiration. Even if the debtor can’t pay today, you may still collect years down the road if their finances improve.
When the Debtor Has No Assets
Some debtors are what the law calls judgment proof. They have no job, no money in the bank, and no property worth seizing. Government benefits like Social Security are generally protected from garnishment, and state exemption laws shield basic necessities such as clothing, furniture, and sometimes a modest amount of home equity.5Consumer Financial Protection Bureau. Can a Debt Collector Take or Garnish My Wages or Benefits?
Being judgment proof doesn’t erase the judgment. It means collection has to wait. If the debtor later gets a job, opens an account, or buys property, your judgment can attach to those new assets. That’s why keeping the judgment active and renewed matters. Weigh the ongoing cost of enforcement against the realistic chance of recovery, and act when circumstances change.
Keep Your Contact With the Debtor Within the Rules
There are legal limits on how aggressively anyone can pursue a debt. The federal Fair Debt Collection Practices Act restricts contact to between 8 a.m. and 9 p.m. local time, prohibits threats and misleading statements about what’s owed, and bars disclosing the debt to third parties.8Office of the Law Revision Counsel. 15 U.S. Code 1692c – Communication in Connection With Debt Collection
One important boundary: the FDCPA technically applies to third-party collectors, not individuals collecting their own debts. But many states extend similar protections to original creditors, and even where no state law binds you, harassing behavior can undermine your credibility in court. Keep contact professional, documented, and reasonable in frequency regardless of which rules technically apply.
Write Off a Truly Uncollectible Debt on Your Taxes
If you’ve exhausted every avenue and the debt is genuinely uncollectible, you may be able to write it off on your federal return as a nonbusiness bad debt. The IRS treats this as a short-term capital loss, reported on Form 8949 with a detailed statement explaining the debt, the debtor, your relationship, your collection efforts, and why you concluded the debt is worthless.9Internal Revenue Service. Topic No. 453, Bad Debt Deduction
The requirements are strict. The debt must have been a genuine loan, not a gift. You must have expected repayment when you made it, and a signed promissory note or interest charges help prove that. The debt must be totally worthless, not partially uncollectible. And your documented collection efforts matter: the IRS wants to see that you actually tried to get paid before giving up.
As a short-term capital loss, the deduction offsets capital gains dollar for dollar. Any excess can offset up to $3,000 of ordinary income per year, with the rest carrying forward. If you realize later that you could have claimed the deduction, you generally have three years from the original filing date to amend the return.9Internal Revenue Service. Topic No. 453, Bad Debt Deduction