Small Claims lawsuits about unpaid personal loans

Personal lending and borrowing is widespread, so lawsuits related to unpaid personal loans for an amount of $25,000 or less show up frequently in Toronto Small Claims Court, as well.

The Role of Promissory Notes in your Toronto Small Claims Court lawsuit

If you’re in a situation where you lent money to another person and were not paid back, your chances of collecting it by suing the individual in Toronto Small Claims Court (or another Small Claims Court in Ontario) will depend on the circumstances of borrowing. Ideally, you have a promissory note (sometimes called an IOU). A promissory note is a note, signed by the borrower, that details: 

  • how much was borrowed
  • who borrowed from whom
  • when the borrowing took place
  • when the loan should be repaid
  • any interest that applies to the loan 

Promissory notes can be simple – they needn’t necessarily be formal, notarized documents (though it definitely won’t hurt if they are). Oftentimes, a handwritten piece of paper with all the important information can be sufficient.

The reason promissory notes are important and increase your chances of success if you are suing a borrower in Toronto Small Claims Court is that they ascertain that the sum of money was, in fact, loaned, and not given to the borrower for another reason. The most frequent defence to a small claims lawsuit about repaying a personal loan is that the loan was actually not a loan, but a repayment of a debt, or money paid for a service, or some other such thing – some defences can get creative. 

How to sue someone to collect an unpaid personal loan without a promissory note

We say that a promissory note is ideal, but most of the time, money is lent to friends, and the possibility of failure to repay the loan doesn’t enter the lender’s mind, so obtaining promissory notes is often neglected. Do not despair if you don’t have a promissory note, however – if your case is presented correctly, you can still be successful in your small claims lawsuit even without one. 

If you don’t have a promissory note, the next best thing is any written confirmation of the debt. This could be emails, letters, notes, text messages or anything of the sort that discusses the loan as a loan. In the absence of written confirmation, proving your small claims court case is somewhat more difficult, but not impossible. You would have to look for witnesses who can support the fact that you gave a loan, provide bank account statements or cheques that show when the loan was given, and otherwise assess what evidence may be relevant to your particular small claim. This is something that would be our primary focus should you wish to retain us to represent you in your personal loan small claims lawsuit. Please don’t hesitate to contact us for a free case assessment.

If the borrower files a defence that denies the fact that the sum paid was a loan, you should also be prepared to address whatever issues the defence raises. 

Things to keep in mind when suing someone in Toronto Small Claims Court to recover a personal loan 

In addition to thinking of how to best prove your small claims lawsuit about an unpaid personal loan, there are two other things to keep in mind:

  1. You need to know where the borrower lives, works, or where he or she can otherwise be found and served with the small claim. If the borrower dropped off the face of the earth and you don’t have any address where you can give him or her the plaintiff’s claim, you may have to first investigate his or her whereabouts. 
  2. You need to consider the limitation period, i.e. the period of time after the expiry of which you are no longer entitled to filing a claim. The limitation period can vary from case to case, but generally, it is two years. The key here is that the two years doesn’t usually begin when you gave the loan. The limitation period for unpaid personal loans usually expires two years after you realized that the loan won’t be repaid. If the loan had not been paid for a long time, this issue may need to be addressed in the course of the Toronto Small Claims Court procedure.

For those being sued in Small Claims Court for not repaying a personal loan 

If you are being sued for failing to repay a personal loan, your best course of action depends on the circumstances of the case. If you actually borrowed money and did not repay it, it would generally be difficult for you to defend yourself in Toronto Small Claims Court, or another Small Claims Court in Ontario, especially if the plaintiff has a promissory note or another type of written confirmation of the debt. Moving forward with a substantial defence (denying that you owe anything) may then simply cause delay and inflate your costs. If you are in such a situation, it may be more efficient for you to reach a settlement with the plaintiff whereby you structure a mutually acceptable payment plan. A paralegal can often be helpful in communicating with the other side in such cases.

If you had not actually borrowed the money, your defence will, of course, vary depending on your particular circumstances. You may need to show that, for example, the “loan” was a payment for goods or services, repayment of another loan, or whatever the case may be. If your signature was forged on a promissory note or another written confirmation of the debt, you may need to provide a forensic analysis of your signature. If you would like a free assessment of your particular situation, please don’t hesitate to contact us.

Sylvie, Toronto

I really appreciated your attention to details, your level of preparation which was impressive, and enthusiasm. I am really happy we have Spectrum Paralegal in our corner. Thank you for being the champion of our small claims court!