If someone owes you money and won’t pay, what to do is straightforward in outline even when it’s tedious in practice: document the debt, send a written demand for payment, and if that fails, sue in the appropriate court and use its enforcement tools to collect. Each step builds pressure on the debtor and strengthens your position for the next one, whether the money is from a personal loan, an unpaid invoice, or a contractor who took a deposit and disappeared.
Gather Your Evidence First
Before you send a letter or file anything, pull together every scrap of proof that the debt exists. A signed contract or written loan agreement is the strongest thing you can have. Invoices, purchase orders, account statements, and Venmo or PayPal transaction records all help. Emails and text messages where the other person acknowledges the debt or promises to pay are especially useful, because they show the debtor knew about the obligation.
You also need evidence that you held up your end. If you provided a service, gather delivery confirmations, photos of completed work, or time logs. If you lent money, a bank statement showing the transfer works. The goal is to leave no room for the other person to claim they don’t owe you anything or that you never delivered.
Don’t edit or delete text messages or emails related to the debt. Courts care about authenticity, and a screenshot with gaps looks suspicious. Export the full thread into a readable format you can print or share. A judge will want to see an unbroken chain of communication, not cherry-picked messages.
Send a Demand Letter
A demand letter is your formal, written “pay me or I’m taking legal action” notice. A lot of disputes end here, because people who ignore phone calls and texts often take a written threat of litigation seriously. Even if it doesn’t produce payment, the letter creates a paper trail showing you tried to resolve the matter before suing, which judges appreciate.
Keep it short, factual, and professional. Include your name and address, the debtor’s name and address, the date, and the exact dollar amount owed. Describe the basis for the debt in a few sentences, referencing the original agreement, invoice, or loan date. Set a firm payment deadline. Fourteen to thirty days is standard, and you should specify which payment methods you’ll accept.
End with a clear statement that you intend to pursue legal remedies if payment doesn’t arrive by the deadline. Skip threatening or emotional language; it undermines your credibility and can create problems if the letter is later shown to a judge. Send it by USPS Certified Mail with a return receipt requested so you have proof the debtor received it.1United States Postal Service. Certified Mail – The Basics Keep a copy of the letter and the mailing receipt.
Check the Deadline to Sue
Every state sets a deadline for filing a lawsuit over an unpaid debt. Miss it and you lose the right to sue entirely, no matter how strong your evidence is. Written contracts generally carry statutes of limitations of three to ten years. Oral agreements, which are harder to prove in the first place, tend to have shorter windows, often two to six years.
The clock usually starts running on the date the payment was due or the date the debtor last made a payment. If you’ve been waiting years hoping someone will eventually pay you back, check your state’s deadline before doing anything else. A lawyer or your local court’s self-help center can tell you exactly how much time you have left. This is the single most common way people lose valid claims, and it’s entirely preventable.
Consider a Collection Agency
If the demand letter goes nowhere and you’re not ready to sue, a collection agency is a middle step worth considering, especially for business debts from unpaid invoices. Agencies specialize in tracking down debtors and applying steady pressure through calls and written notices. Most work on contingency, so you pay nothing upfront. The catch is the cut: collection agencies typically keep 25 to 50 percent of what they recover.
This route makes the most sense when the debt has been outstanding for 90 days or more, you can’t reach the debtor, or you don’t have the time to pursue it yourself. It makes less sense for small personal loans, where the agency’s cut would eat most of what you’re owed. Once you hand a debt to an agency, that agency becomes a “debt collector” under the Fair Debt Collection Practices Act and must follow strict federal rules about how they contact the debtor.2Federal Trade Commission. Fair Debt Collection Practices Act When you collect in your own name, those rules don’t apply to you directly, but they govern any third party you bring in.
Small Claims vs. Regular Civil Court
If informal efforts fail, it’s time to sue. Your two main options are small claims court and regular civil court, and the dollar amount usually decides which one.
Small claims court is designed for smaller disputes and built to be accessible to people without lawyers. The maximum you can sue for varies by state, ranging from $2,500 at the low end to $25,000 at the high end. The process is streamlined, hearings are short, and filing fees are modest, typically $15 to a few hundred dollars depending on the claim amount and the court. Most personal debts and smaller business debts end up here.
For debts that exceed your state’s small claims limit or involve complicated contract disputes, you’ll need to file in a higher civil court. That generally means hiring an attorney, following formal rules of procedure, and paying higher costs. The trade-off is that an attorney can handle discovery, depositions, and a formal trial, which matters when the debtor is likely to fight the case aggressively or when the amount at stake justifies the expense.
Filing and the Hearing
You file at the courthouse in the county where the debtor lives or where the transaction took place. The clerk’s office will have the forms you need, often called a “complaint” or “statement of claim,” and many courts offer downloadable versions online. Fill out the form with the debtor’s name and address, the amount you’re claiming, and a brief description of why you’re owed the money.
You’ll pay a filing fee when you submit the form. Fees scale with the size of the claim and vary widely by jurisdiction. If you can’t afford the fee, most courts allow you to apply for a waiver based on financial hardship. Keep your receipt; if you win, you can usually add the fee to the judgment.
After filing, the debtor has to be officially notified through “service of process.” You can typically have the sheriff’s department deliver the papers for a small fee, hire a private process server, or in many courts use certified mail with a return receipt. The court then schedules a hearing. Both sides show up, present evidence to a judge, and the judge issues a binding decision. Most small claims hearings last 15 to 30 minutes, so organize your documents and practice summarizing your case clearly and quickly.
Mediation and Settlement
Don’t be surprised if the court sends you to mediation before you see a judge. Many small claims courts either strongly encourage or outright require it as a first step. A neutral mediator sits down with both of you and tries to help you reach a voluntary agreement. The mediator can’t force either side to accept a deal and can’t give legal advice.
If you reach an agreement in mediation, the court can adopt it as an official order the same day. If you don’t, the case proceeds to trial. Anything said during mediation stays confidential and can’t be used against either party later. A negotiated outcome you both agree to is often easier to collect on than a judgment the debtor resents.
You and the debtor can also settle on your own at any point. Sometimes 70 or 80 cents on the dollar today beats months of chasing the full amount. If you reach a deal, get it in writing. A proper settlement agreement includes the exact payment amount and due date, the payment method, and a clear release stating that once the debtor pays, you won’t pursue any further claims related to this debt. For installment deals, spell out the schedule and what happens if a payment is missed. Both parties sign; each keeps a copy. If you’ve already filed a lawsuit, ask the court to enter the settlement as a court order, which gives you enforcement power if the debtor doesn’t follow through. Don’t accept a verbal settlement promise from someone who already broke a verbal promise to pay you.
Collecting After You Win
Winning a judgment is only half the battle. The court won’t collect the money for you. If the debtor doesn’t pay voluntarily after the judge rules in your favor, you’ll need to use the court’s enforcement tools.
Finding Out What the Debtor Has
If you don’t know where the debtor banks or works, you can ask the court for a debtor’s examination. This is a hearing where the debtor must appear under oath and answer questions about income, bank accounts, property, and other assets. Failing to show up can result in a contempt finding and even a bench warrant. What you learn tells you which collection method to pursue.
Wage Garnishment
If the debtor has a regular job, wage garnishment is often the most reliable method. You ask the court for a garnishment order, which directs the debtor’s employer to withhold a portion of each paycheck and send it to you. Federal law caps the garnishment at the lesser of 25 percent of the debtor’s disposable earnings or the amount by which their weekly earnings exceed 30 times the federal minimum wage.3Office of the Law Revision Counsel. United States Code Title 15 Section 1673 – Restriction on Garnishment Some states impose lower caps. The money comes in gradually, but it comes.
Bank Levies and Property Liens
A bank levy lets you seize money directly from the debtor’s account. You’ll typically need to request a writ of execution from the court and deliver it to the local sheriff or marshal, who contacts the bank. A levy is a one-time grab of whatever is in the account at that moment, though you can request another one later. Certain funds, like Social Security benefits, are generally protected.
A property lien attaches your judgment to the debtor’s real estate or other titled property. The debtor can’t sell or refinance without paying off the lien first. Liens don’t put cash in your pocket immediately, but they secure your position for the future. In most states, court judgments remain enforceable for ten years or longer and can often be renewed, so patience can pay off.
Writing Off an Uncollectible Debt
If you’ve exhausted every option and the debt is genuinely uncollectible, you may be able to claim a tax deduction. The IRS allows a nonbusiness bad debt deduction for personal loans that have become totally worthless. The key word is “totally”; you can’t deduct a partially worthless personal debt.4Internal Revenue Service. Topic no. 453, Bad Debt Deduction
To qualify, you need to prove the money you gave was a loan, not a gift. Loans to friends or family where both sides understood repayment might never happen don’t count. You also need to show you took reasonable steps to collect and that the facts make clear there’s no realistic chance of repayment. You don’t necessarily need a court judgment, but you do need to explain why you concluded the debt was worthless.
The deduction is reported as a short-term capital loss on Form 8949. You enter the debtor’s name, your basis in the debt (the amount you lent), and zero for the proceeds. You must also attach a statement to your return describing the debt, the debtor, your relationship, your collection efforts, and why you’re writing it off.4Internal Revenue Service. Topic no. 453, Bad Debt Deduction Because it’s classified as a capital loss, the deduction is capped at $3,000 per year against ordinary income ($1,500 if married filing separately), with any excess carrying forward to future years.5Internal Revenue Service. Topic no. 409, Capital Gains and Losses Recovering a fraction of the loss through your tax return is better than walking away with nothing.