When friendly loans turn into expensive lessons

It’s Friday afternoon and the calls start coming in. By now, after years as a Black Caribbean female paralegal serving our community in Toronto, I can almost predict the stories before the phone finishes ringing. “Hi Legal Lisa… I need some advice.”

The first caller explains that he loaned a colleague at his brokerage $25,000. No payments. Not even a token one. Before I can hang up, another call comes through.

“Hi Legal Lisa, a friend gave me your number. My employer asked me to use my line of credit to buy machinery for his business. He promised he would pay it back. It’s been two years and nothing.”

I pause. “Did you have a written agreement?” I ask.

Silence.

What we’re talking about here are verbal promissory loans, the kind made on a handshake, a promise, or sometimes pressure from someone who seems powerful or successful. Maybe it’s a boss. Maybe it’s a colleague who appears to be doing well financially. Maybe they reassure you by mentioning their spouse’s six-figure salary or their big business plans.

In our Caribbean culture, we often pride ourselves on trust and helping each other. But unfortunately, that same trust sometimes puts people in very difficult situations. Many of these arrangements are made without documentation, sometimes intentionally, and when the money doesn’t come back, the lender is left asking the same question, “Legal Lisa, what can I do?”

Gather your evidence

Before you run to court, start by gathering every piece of evidence you have related to the loan. This can include:

• Emails or text messages discussing the loan
• Any written documents referencing repayment
• Witness statements or sworn affidavits
• Bank transfers or payment records
• Invoices or receipts connected to the loan
• Information about the debtor’s assets or banking institutions

Remember, in a legal dispute you must show two things: that the debt exists and that repayment was expected. Even verbal agreements can be enforced, but the more evidence you have, the stronger your case.

Consider mediation first

Now here’s the advice I give to many people that surprises them. Don’t rush straight to court. Instead, consider working with a professional mediator. Mediation allows both parties to sit down with a neutral third party to negotiate a resolution. The mediator helps guide the conversation toward repayment plans, partial settlements, or other creative solutions.

Why does this matter?

The alternative (civil litigation) can be slow, stressful, and expensive. In mediation:

• Matters can be resolved in weeks or months, not years
• Costs are often significantly lower
• Relationships sometimes remain intact
• Payment agreements can be structured realistically

For many people, mediation is the fastest way to get money moving again.

When Small Claims Court becomes necessary

If mediation fails, or the other party refuses to cooperate, then it may be time to consider Small Claims Court. In Ontario, Small Claims Court handles disputes involving $35,000 or less, not including interest and court costs. Common claims include:

• Unpaid loans
• Breach of contract
• NSF cheques
• Unpaid goods or services
• Property damage or minor personal injury claims

You typically have two years from the date the issue occurred to file a claim under Ontario’s Limitations Act, 2002.

What the process looks like

To begin the process, you file a Plaintiff’s Claim (Form 7A) through the Ministry of the Attorney General’s online filing system. Current court fees include:

• $102 to file a claim
• $89 to request default judgment
• $290 to schedule a trial

After filing, the defendant has 20 days to file a defence. If they respond, the court schedules a Settlement Conference. This meeting encourages both sides to resolve the dispute before trial. Interestingly, only about 10% of cases go to trial. Most settle beforehand, but if your matter proceeds to trial, be prepared for a timeline of one to two years before a final decision is reached.

The good news is that you do not need a lawyer to proceed in Small Claims Court. Many people represent themselves or work with a licensed paralegal. Even if you win, however, courts generally allow recovery of only about 15% of your legal costs, so it’s important to consider whether litigation makes financial sense.

So… What can you do?

Here’s my straight answer to the question I hear every week. If someone owes you money:

1. Collect your evidence: texts, emails, bank records and witnesses.
2. Confirm the amount owed and repayment terms.
3. Attempt mediation first to resolve the dispute faster and with less cost.
4. If mediation fails, file a Small Claims Court action within two years.
5. Prepare for the possibility that the legal process may take time.

Let me leave you with one final piece of “Legal Lisa” wisdom. Before lending large amounts of money, even to friends, coworkers, or employers, put it in writing. A simple agreement today can save thousands of dollars and years of stress tomorrow.

If you’re already in the situation? Don’t panic. There are options, there are processes, and with the right approach, there may still be a path to getting your money back. Book an appointment with an experienced advocate to customize a resolution.