A promissory note is an essential legal document that outlines the terms and conditions of a loan between two parties. Understanding the obligations and responsibilities associated with a promissory note is necessary, as failure to abide by those terms may lead to serious legal consequences. Read on to understand the potential legal implications of not paying a promissory note.
Legal Characteristics of Promissory Note
A promissory note typically includes specific legal characteristics, such as:
They are legally binding: Once both parties sign a promissory note, it becomes legally binding.
The parties involved: The document must list the names of all involved parties.
The payment amount and due date: It should also include the full payment amount for the loan and when it must be paid back in full.
Default Terms: Default terms should be included in the note. This outlines what will happen if the borrower fails to repay the loan on time or as agreed, which may have legal action.
The Consequences of Not Paying a Promissory Note
There can be severe legal ramifications if you fail to pay your promissory note in full or on time. The creditor can take several steps depending on the type of loan, such as filing a civil lawsuit against you for breach of contract.
If you are found liable for breach of contract, you may be required to pay back the amount owed plus interest and any court fees or attorney’s fees incurred by the creditor. Furthermore, if you don’t respond or appear in court when summoned, it could result in a default judgment being issued against you. This means that all damages sought by the creditor will be awarded in their favor without your input or defense being considered.
In addition to civil litigation, creditors have other options when pursuing debt collection from delinquent borrowers. Depending on state laws and regulations, creditors may be able to garnish wages or seize assets to repay the debt owed under a promissory note.
Creditors must typically receive permission from a court before attempting either method. However, once granted permission, they can begin collecting debt directly from any source of income or assets owned by the debtor.
Breach of Unsecured Debt
When a promissory note is unsecured, the borrower does not have to use any assets as collateral. If the borrower fails to pay on time or in full, they may be held financially liable for breach of contract. The creditor can pursue civil litigation against them and ask for repayment plus interest, fees, court costs, and other associated damages.
Get to Understand Promissory Notes Today!
All borrowers must understand their rights and obligations when entering any agreement involving credit, including signing a promissory note. Failure to comply with its terms can have serious legal ramifications, including civil litigation, wage garnishment, and asset seizure.
Suppose you are struggling with repaying your debts and need assistance understanding how best to proceed with repayment plans or negotiating settlements with creditors. In that case, you must seek out professional advice from an experienced attorney who can help protect your rights throughout this process.
But still, you don’t have to seek legal assistance when filing a promissory note. Forms.legal offers free promissory note templates that you can fill in, download and print to use as it suits you.