Owing money to family and friends
Money borrowed from people you love often feels like the most urgent debt. Legally it is usually not, but it still needs handling carefully and honestly.
Applies to: England, Wales & Northern Ireland
What to do now
- Write down what was lent, when, and what you agreed — add it to Find My Debts.
- Talk to them honestly, and offer what you can afford after priority bills.
- Get free advice before repaying a family member a lump sum if you have other debts.
Loan or gift?
If money was given as a gift, it is not a debt. If you both understood it was a loan to be repaid, it can be a legally binding agreement, whether or not anything was written down. Family arrangements are sometimes assumed not to be legally binding, but that depends on the facts. A written note of the amount and what was agreed protects you both.
Priority or non-priority?
Non-priority. A family member or friend has no special powers. Like any other creditor, they would have to go to court and get a county court judgment before they could use enforcement. The six-year time limit for most debts in England, Wales and Northern Ireland applies to personal loans too, so very old debts may be statute barred. Rent or mortgage, council tax and energy still come first.
Talking to them
Many people avoid the conversation because of guilt, which usually makes things harder. The person who lent the money may be more worried about you than about the money.
- Be honest about your whole situation, not just this debt.
- Offer a regular amount you can keep up, even if it is small.
- Agree it in writing so there is no misunderstanding later.
- If someone is using a loan to pressure or control you, that may be economic abuse, and help is available.
Formal solutions: the preference rule
If you apply for a DRO, an IVA or bankruptcy, you must list debts to family and friends like any other creditor. Paying a family member back ahead of other creditors shortly before applying can be treated as a preference. In bankruptcy, the trustee can ask the family member to repay that money, and a DRO can be refused or revoked because of it. Once you are in a solution, the family debt is dealt with in the same way as your other unsecured debts. If you want to repay them later, after the solution ends, that is your choice.
If a family member is your guarantor
That is different: if you fall behind on a guarantor loan, the lender can ask them to pay, and your own formal solution does not release them. Tell them before you apply. See guarantor loan debt.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
Is money borrowed from family legally binding?
It can be. If you both meant it as a loan to be repaid, it can be a binding agreement even without paperwork. A gift is not a debt.
Can I pay my family back before going bankrupt?
Paying a family member ahead of other creditors shortly before bankruptcy or a DRO can be treated as a preference. The trustee can recover the money, and a DRO can be refused. Get advice first.
Do I have to include family debts in a DRO or IVA?
Yes. You must list all your creditors, including family and friends, and treat them the same as your other unsecured creditors.