Dear Debt Adviser,

My wife and I loaned her family about $16,000 nearly four years ago. They haven't paid anything back, and I don't know what to do. We electronically transferred the money directly to her parents' bank account. The money was used to keep her parents in their house and her brother and sister in their apartment. They promised they would repay us $500 per month, but they haven't paid anything. I'm trying not to cause problems between my wife and myself. But what can I do? Do I have any legal recourse?
-- Jerry

Dear Jerry,

For a guy who doesn't want to cause any problems with his wife, inquiring about legal recourse against her family is not the right question to ask. Loaning money to family is a recipe for disaster. More often than not, feelings are hurt, relationships are damaged and sometimes financial lives are ruined. It is hoped you will be able to come out of this with your family and finances intact and only a hard lesson learned.

I suggest one of you ask your wife's family if something is wrong at their end. Whoever has the best relationship with them should do the asking. A display of concern is often a good way to introduce a sensitive subject.

Depending on the answer, your problem may be solved -- or it may get more serious. That's a chance you have to take. Since you state you are trying to keep this loan from coming between you and your wife, which I agree is a great idea, I recommend the two of you agree beforehand on all the points that will be covered when you confront them. Also agree on what alternatives you both are willing to pursue.

If nonpayment of the debt is causing you and your wife financial problems, then I would still start by expressing your concern. But hang firm on the need for them to make the $500 monthly payments. Should they be unable to do so, all you can do is let them know that you made the loan in good faith expecting that they would honor their commitment. Tell them the fact that they have not made payments is straining your own finances.

My guess is that your wife's family members don't have the money and are too embarrassed to say anything. Or maybe they assume you can afford it, and are OK with the nonpayment since you haven't said anything.

Now is the time for candor in addition to concern. Try to work out a regular monthly debt payment that they can afford. Be sure to get any revised payment arrangement in writing, if only to be sure everyone fully understands what is being promised. You may get at least some of your money back if you are willing to be a little flexible and take less per month.

As far as legal recourse, it is important that you and your wife are very comfortable with pursuing this option. You may have a decent case that family members are in breach of a verbal contract. But you need to weigh the advantages and disadvantages of going to court. First, would it cause irreparable damage to family relationships, and do you (or your wife) care? Second, without a written document, does your lawyer believe you could prove to a judge that a verbal contract exists? Finally, do you want to spend additional money to hire an attorney? Even if you win, you still won't necessarily get repaid. It's up to you to collect any judgment awarded.

A word of advice for my readers: Don't loan money to family unless you can afford to give them the money as a gift, with no expectation of ever being repaid.