How can a promissory note be enforced?

To enforce a promissory note, the holder must provide notice as required by the promissory note. If the borrower does not make the payment on time, the note holder can file an action to recover the payment. The first step to enforcing an unsecured note is to file a petition in court and get a judgment in your favor. Although this is a powerful legal enforcement of your rights under the promissory note, it does not in itself guarantee the reimbursement of the promissory note.

Promissory notes are legally binding documents. A person who does not repay a loan detailed in a promissory note may lose an asset that secures the loan, such as a home, or face other actions. The lender usually keeps the original copy of a valid promissory note, but the borrower must also keep a copy of the signed document. If the borrower fails to repay the loan, the lender can take appropriate legal action.

Once the debt has been fully paid, the lender must date and mark the note as “paid in full.” By placing all relevant details in writing, a promissory note ensures clarity of payment due dates and amount of payments. This type of promissory note does not allow the party lending the money to insure an asset for the loan. Secured or “guaranteed” notes explicitly specify assets that could be used as collateral if the debt is not repaid in accordance with the terms of the agreement. A note must include the date of the loan, the dollar amount, the names of both parties, the interest rate, any collateral involved, and the time frame for repayment.

If you don't want to follow this path and have exhausted all the resources available to you, there is the final option of selling the promissory note to an entity that specializes in buying notes and trying to collect the debt. However, if a borrower doesn't pay a promissory note and won't repay it, the lender can legally own any property the person promised as security. A third factor that could invalidate a promissory note is if the original document is lost or if it has been altered without both parties agreeing (and signing) the changes. The best way to protect yourself when lending money is to form a legally binding promissory note so that you have a means of collecting your investment in the event of a breach of the terms of the note.

However, this is not always the case, and when a default occurs, the resources to enforce the reimbursement of the promissory note are less forceful than having the ability to simply recover the secured assets. If you are owed money under a promissory note that has not been fully repaid, you may need to file a breach of contract lawsuit. It can be quite tedious and costly, both in terms of time and money, to enforce an unsecured note. For the lender, an invalid note may mean they can't sue for the money the borrower promises but doesn't pay.

However, whether you're writing a simple promissory note, a demand note, or a custom promissory note, it's a good idea to consult a verified template. Enforcing a promissory note can be a long and challenging process, so keep reading and find out what steps you can take to resolve your debts properly.