What is an employee’s obligation to pay back a loan to their employer after they have left their job?

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What is an employee’s obligation to pay back a loan to their employer after they have left their job?

We were given a loan of $10,000 by a former employer and told we could pay what we could when we could. After being fired, we still paid what we could when we could. Months later, we get a Warrant in Debt wanting to take us to civil court asking for the $10,000 along with 6 % interest. Can we win this?

Asked on March 10, 2012 under Employment Labor Law, Virginia

Answers:

Darren Delafield

Answered 9 years ago | Contributor

The Virginia court can fill in terms of the loan which were vague or left out of the agreement. In other words, a Virginina Court may uphold a contract and supply missing terms that are reasonable, but the Court will not supply an essential term. Wheter it is essential will depend upon the facts of the case. The interest rate is not essential. The default interest rate in Virginia is 6% if the contract is silent regarding the interest rate.

The danger you face is that the Judge will find that the debt was payable in full upon demand because you did not agree upon a repayment schedule. A debt is "payable on demand" if it (a) states that it is payable on demand or at sight, or (b) otherwise indicates that it is payable at the will of the holder, or (c) does not state any time of payment. You should look at Virginia Code § 8.3A-108. Payable on demand or at definite time.

Contracts may either be oral or written. Both may be valid, but contracts to answer for the debt of another must be in writing. You cannot be the guarantor of your spouse's debt unless you reduce the agreement to writing.

If you file a chapter 7 bankruptcy, you can still voluntarily repay the debt. A debtor can make a payment on a debt discharged in bankruptcy in an amount determined by the debtor and a frequency determined by the debtor. The debtor can choose to pay nothing at all. Any repayment of a discharged debt is voluntary and does not reinstate the debt. The point of bankruptcy is to get a fresh start.

If you file a chapter 13 bankruptcy, the Bankruptcy Judge will set a reasonable monthly payment based upon your income and your expenses.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Legally, a loan is enforceable as per its terms, which are binding on both parties. So if you had a payment schedule or an agreement as to how much/how fast to pay, the employer may not generally accelerate that, or require all the money due at once. On the other hand, if the agreement was that you could pay it over time as long as you were employed, but had to repay it all at once if your employment terminated, that agreement is enforceble.

Therefore, practically, the issue may be 1) what were the terms of the agreement about repayment; and 2) if you and the employer disagree as to what those terms were, what can the employer prove (e.g. what testimony, documents, evidence, etc. does it have to prove that you owe the money now)?

Given how much is at stake, you should consult with an attorney about how best to respond. Good luck.


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