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Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Unsecured promissory notes are an essential part of the borrowing and lending process, providing an important written agreement between two parties - a borrower and a lender. They stipulate the financial details of a loan, including the amount borrowed, interest rate, and repayment schedule. As such, it is critical to understand the implications of signing such a document as well as what needs to be done in order to ensure it is drafted correctly. Here, we take a look at unsecured promissory notes and explain why understanding what they entail is so important.

It’s useful to start by understanding the difference between secured and unsecured promissory notes: those that are backed by collateral - like your house or car - are deemed ‘secured’ whereas those without this assurance are known as ‘unsecured’. Unsecured promissory notes provide no guarantee for lenders that their money will be repaid; thus they offer more risk than their secured counterpart. This means that when drafting an unsecured promissory note both parties must protect their interests through clear definitions of key terms in the document. It should include names of involved parties, amount being borrowed, interest rate, repayments schedule; along with remedies in case either party defaults on payment and any other relevant legal specifics (like which laws will govern the note). Crucially it should also state whether or not it is unsecured at all times – this helps eliminate any confusion surrounding its respective terms.

Given how important these documents can be for both borrowers and lenders alike –it is recommended that before agreeing to any terms you seek legal advice or speak with The ��������Ƶ team who provide free templates from our community template library – enabling anyone to create high-quality legal documents without paying costly lawyers’ fees! That said making sure you can afford potential repayments is also vital: defaulting on an unsecured promissory note could lead to serious financial consequences for one or both parties so make sure you consider your situation wisely before entering into an agreement like this.

In sum then when dealing with unsecured promissory notes its best practice for all involved parties – as well as allowing us here at ��������Ƶ help where we can –to take great care throughout every step of the process from initial negotiation through final drafting stages! By doing so everyone can make sure their interests remain protected ensuring peace of mind come repayment time! Read on below then for our step-by-step guidance on getting started today by accessing our free community template library!

Definitions

Collateral: Something of value given to the lender to secure a loan, such as a house or car. If the borrower does not repay the loan, the lender can seize the collateral to recoup the money.

Arbitrate: The process of having a third party resolve a dispute between two parties, usually involving a legal agreement.

Notarized: The process of verifying a document is authentic by having an authorized individual witness the signatures on the document.

Security Interest: The right of a lender to take legal action to collect or repossess collateral that was used to secure a loan.

Default Terms: The consequences that will occur if the borrower fails to repay the loan according to the terms of the note.

Contents

1. Definition of an Unsecured Promissory Note
2. What Information Should Be Included in an Unsecured Promissory Note?
3. Borrower’s Name and Address
4. Lender’s Name and Address
5. Amount of Loan
6. Interest Rate
7. Payment Schedule
8. Late Payment Fees
9. Default Terms
10. Date of Note
11. Signature of Borrower and Lender
12. What Are the Legal Implications of an Unsecured Promissory Note?
13. Secured vs. Unsecured
14. State and Federal Laws
15. Agreements to Arbitrate Disputes
16. How to Draft an Unsecured Promissory Note
17. Choose a Template
18. Fill in the Details
19. Have the Note Notarized
20. How to Execute an Unsecured Promissory Note
21. Signatures
22. Witnesses
23. Notarization
24. What Are the Rights of the Borrower and the Lender?
25. Borrower’s Rights
    #1. Repayment Terms
    #1. Right to Sue
26. Lender’s Rights
    #1. Security Interest
    #1. Rights to Collateral
    #1. Right to Sue
27. How to Collect on an Unsecured Promissory Note
28. Payment Reminders
29. Legal Action
30. What Are the Alternatives to an Unsecured Promissory Note?
31. Secured Promissory Note
32. Loan Agreement
33. Bank Loan
34. What Are the Tax Implications of an Unsecured Promissory Note?
35. Interest Payments as Income
36. Deductible Interest
37. Reporting Requirements
38. How to Get Legal Advice on an Unsecured Promissory Note
39. Hire an Attorney
40. Research Online
41. Consult Community Resources

Get started

Definition of an Unsecured Promissory Note

• Understand what an unsecured promissory note is and why it is used: An unsecured promissory note is a written agreement between two parties in which one party, the borrower, promises to repay a certain sum of money to the other party, the lender, over a certain period of time. There is no collateral involved in an unsecured promissory note.
• Learn the relevant state laws governing unsecured promissory notes: Each state has its own set of laws that govern unsecured promissory notes. Make sure you understand the laws in your state and that you are in compliance with them.
• Familiarize yourself with the requirements of the Internal Revenue Service (IRS): The IRS requires certain information to be included in the promissory note. Make sure you understand and comply with the IRS requirements.

You can check this step off your list when you have familiarized yourself with the definition of an unsecured promissory note and the relevant state and IRS laws and requirements.

What Information Should Be Included in an Unsecured Promissory Note?

• Include the amount to be borrowed, the repayment terms, and the interest rate (if applicable).
• Include the date of the agreement and when the loan must be repaid in full.
• Include the signature of both parties agreeing to the terms of the note.

When the above items have been included in the note, you can check this off your list and move on to the next step.

Borrower’s Name and Address

• Obtain the borrower’s full name and address
• Ensure the address provided is accurate and up to date
• Enter the borrower’s name and address in the appropriate section of the promissory note
• Check that all information is correct and accurate
• Once the borrower’s information is entered, this step is complete and you can move on to the next step: entering the lender’s name and address.

Lender’s Name and Address

• Obtain the legal name and address of the lender
• Include the legal name and address of the lender in the promissory note
• Ensure the address is accurate and up-to-date
• You can check this step off your list when the lender’s name and address are correctly included in the promissory note.

Amount of Loan

• Establish the amount of money being loaned and the currency of the loan.
• Include the principal amount of the loan, as well as any additional fees, interest, or costs associated with the loan.
• Clearly state the amount of the loan in the promissory note.
• Once the amount of money being loaned is established and included in the promissory note, you can move on to the next step.

Interest Rate

• Decide on the interest rate for the loan. Consider the current market rate and the risk of the loan when deciding.
• Specify the interest rate in the note.
• Make sure the interest rate is legally allowable in the jurisdiction.
• Once you have decided on the interest rate and specified it in the note, you can check off this step and move on to the next step.

Payment Schedule

• Establish the payment schedule for the note:
• Decide on the frequency of payments (e.g. monthly, quarterly, etc.)
• Decide on the payment amount.
• Determine when the payments will begin.
• Include a balloon payment (if applicable).
• Calculate the total payments due with the payment schedule.
• Make sure the payment schedule is clear and concise.

Once you have established the payment schedule, you can check this off your list and move on to the next step, which is to determine the late payment fees.

Late Payment Fees

• Decide if you want to add a late payment fee clause to the promissory note
• If so, specify the amount of the late payment fee
• Include the payment timeline for when the late payment fee is applicable
• Make sure to specify if the late payment fee is a flat fee or a percentage of the total amount due
• When you’re done, check off this step from your list and move on to the next step: Default Terms.

Default Terms

• Determine the default terms of the promissory note, such as interest rate and the due date of the loan
• Include any repayment terms that are not based on the due date, such as a percentage of the principal balance due each month
• Outline the consequences of defaulting, such as late fees or interest rate increases
• Specify the consequences if the borrower is more than 30 days late on a payment
• Include any other relevant terms and conditions related to the loan
• Make sure all terms and conditions are clear and unambiguous
• Once all default terms have been included, you can move on to the next step: Date of Note.

Date of Note

• Enter the date of the promissory note.
• This should be the date when the note is signed and issued.
• Enter the date in the format as specified in the note.
• Once the date is entered, you can check this off your list and move on to the next step.

Signature of Borrower and Lender

• Get both parties to sign the note in the presence of a witness or notary public.
• Make sure to include the date of signing and the name of the signatory.
• Ask the borrower to provide valid ID, like a driver’s license or passport.
• Once the signatures are complete, check off this step and move on to the next step.

What Are the Legal Implications of an Unsecured Promissory Note?

• Understand that an unsecured promissory note does not require the borrower to provide any form of collateral to secure the loan.
• Consider the legal implications of an unsecured promissory note, such as the lack of legal recourse available to the lender if the borrower defaults on the loan.
• Research the applicable laws in your location to ensure that you comply with all legal requirements.

Once you’ve reviewed the legal implications of an unsecured promissory note, you can check this off your list and move on to the next step.

Secured vs. Unsecured

• Determine whether the promissory note should be secured or unsecured.
• An unsecured promissory note is a written promise to pay back a loan without any collateral being provided as assurance of repayment.
• Consider the creditworthiness of the borrower and the amount of the loan when deciding whether to make the promissory note secured or unsecured.
• If the borrower has a low credit score or the amount of the loan is high, a secured promissory note may be the better option.

You can check this off your list when you have determined whether the promissory note should be secured or unsecured and have considered the creditworthiness of the borrower and the amount of the loan when making this decision.

State and Federal Laws

• Research state and federal laws of where the loan will be issued, as laws vary from state to state
• Ensure that the language of the promissory note abides by all applicable state and federal laws
• Consult with a lawyer to ensure that the promissory note is legally binding
• Once the laws have been reviewed and the language of the promissory note is legally binding, you can check this off your list and move on to the next step.

Agreements to Arbitrate Disputes

• Ensure that the parties agree to use arbitration to resolve any disputes that may arise from the promissory note.
• If a dispute arises, include a clause in the promissory note that requires the parties to go to arbitration instead of the court system.
• Make sure to include in the arbitration clause the name of the organization or individual that will resolve the dispute, and the location of the arbitration.
• Include a provision that will require the losing party to pay all costs of the arbitration.
• Once all the above provisions have been included in the promissory note, you can check this step off your list and move on to the next step.

How to Draft an Unsecured Promissory Note

• Research applicable laws and regulations in the jurisdiction of the promissory note to ensure the note is legally binding.
• Identify the parties involved in the promissory note and include their contact information.
• Outline the amount of money due and the payment due date in the note.
• Specify any interest rate and late payment fees if applicable.
• Sign and date the note.
• Have the note witnessed by an impartial third party if necessary.
• Make copies of the note for both parties.

You’ll know you can check this step off your list and move on to the next step when you have all the necessary information filled in and the note has been signed and dated.

Choose a Template

• Determine the type of promissory note you need: secured or unsecured
• Search online for a template that meets your needs
• Download and print the template
• Review the template to ensure that it meets all of your requirements
• Once you have chosen a suitable template, you can check this step off your list and move on to the next step.

Fill in the Details

• Enter the amount of the loan and the date it was issued
• Enter the name and address of the borrower
• Enter the name and address of the lender
• Enter the terms of the loan, such as the payment due date and amount, interest rate and any other relevant details
• Sign the document, with both parties signing and dating the document
• Have the document witnessed by two people who are not parties to the agreement

Once all these details have been filled in and the document has been signed and witnessed, you can check this step off your list and move on to the next step of having the note notarized.

Have the Note Notarized

• Bring the signed promissory note to a notary public
• The notary public will sign and stamp the document to confirm their signature
• The notary public must also check the signer’s identification
• Once the promissory note has been notarized, you can check this off your list and move on to the next step of executing an unsecured promissory note.

How to Execute an Unsecured Promissory Note

• Have all parties sign the document in the presence of a notary public
• Make sure that all parties have a valid government-issued ID present
• The notary will witness the signatures and then sign and stamp the document
• Once all signatures are present and the notary has completed their part, the document is ready and can be checked off your list as complete

Signatures

• Both the lender and the borrower must sign the note in the presence of each other
• After the signatures are complete, the note is considered legally binding
• You can check this step off your list and move on to having witnesses sign the note

Witnesses

• Ask witnesses to read the note and confirm their understanding of the terms and conditions
• Make sure the witnesses sign and date the note in the presence of the borrower and lender
• Have the witnesses provide some form of identification
• Review the note to ensure that all the required information has been provided
• Check off this step and move on to the next step, Notarization.

Notarization

• Have the promissory note signed by the borrower and two witnesses
• Have the notary public present and have the borrower, witnesses, and notary public sign the document in the presence of one another
• Ensure that the notary public has the borrower’s valid ID and verifies the borrower’s signature on the document
• Once the notary public has completed their part, the notarized promissory note is now legally binding
• You can now check this off your list and move on to the next step, which is to review the rights of the borrower and the lender

What Are the Rights of the Borrower and the Lender?

• Decide the rights that the borrower and the lender will have
• Consider the rights that are commonly included in an unsecured promissory note such as repayment terms, interest rates, and late fees
• Draft an agreement that includes all of the decided rights of the borrower and the lender
• Have the borrower and the lender sign the agreement

When you can check this off your list:
Once the borrower and the lender have both signed the agreement, you can move on to the next step of the guide.

Borrower’s Rights

• Understand that the borrower has the right to repayment of the loan in full, with interest, on the due date
• Familiarize yourself with the applicable state or federal law governing the terms of the note
• Be aware that the borrower cannot be required to pay a penalty for prepayment
• Understand that late payments may result in default on the note
• Note that the borrower may have other legal rights such as the right to notice of default and the right to cure a default
• Make sure to include these rights in the promissory note

Checklist:

• Understand the borrower’s rights
• Familiarize yourself with applicable law
• Include the rights in the promissory note

Once all of the above items are completed, you are ready to move on to the next step: #### Repayment Terms.

Repayment Terms

• Establish the repayment schedule. This should include how many payments will be made, when they will be due, and how much each payment will be.
• Determine an interest rate, if any, and how it will be calculated.
• Include any provisions for late payments, such as a late fee, additional interest, or other penalties.
• Decide if the Promissory Note will have a balloon payment (a single, large payment due at the end of the term).

When you are satisfied with the repayment terms, you can check this step off your list and move on to the next step: #### Right to Sue.

Right to Sue

• Include an enforceable right to sue in the event the promissory note is not honored.
• Specify the court of jurisdiction where the lender can sue in the event of a breach of the promissory note.
• Provide the lender with the right to file a lawsuit without first having to pursue other methods of collecting the debt.
• When the right to sue has been established, check it off your list and move on to the next step, which is specifying the lender’s rights.

Lender’s Rights

• Ensure the promissory note includes a clause that outlines the lender’s right to sue the borrower in the event of a default.
• The lender should also include a clause that states the borrower’s agreement to pay the legal costs associated with pursuing legal action against them.
• Include a clause that ensures the lender has the right to collect compensation from the borrower for any costs associated with pursuing legal action.
• Once the lender’s rights have been outlined in the promissory note, you can move on to the next step.

Security Interest

• Consider the possibility of having a security interest in the borrower’s assets.
• If this is the case, the Promissory Note must specify the collateral being used to secure the loan.
• Make sure the Promissory Note contains clear language about the security interest, including the value of the collateral and any applicable restrictions.
• Once you have included the security interest language in the Promissory Note, you can check this step off your list and move on to the next step, which is to include rights to collateral.

Rights to Collateral

• Determine if the unsecured promissory note requires collateral.
• If collateral is required, specify the type of collateral and the parties’ rights to it.
• Establish the terms and conditions for any collateral to secure the promissory note.
• Specify any restrictions or limitations on the collateral.
• Include a clause to define what will happen if the borrower defaults.
• Once the collateral section of the unsecured promissory note is completed, check it off your list and move on to the next step.

Right to Sue

• Determine whether the unsecured promissory note includes a right to sue clause.
• If not, include a right to sue clause in the promissory note.
• A right to sue clause states that if the borrower defaults on the promissory note, the lender has the right to sue for repayment of the loan amount.
• When you have included a right to sue clause in the promissory note, you have completed this step. You can now move on to the next step: How to Collect on an Unsecured Promissory Note.

How to Collect on an Unsecured Promissory Note

• Send the debtor a written demand for payment with an explanation of why the debt is owed and when it must be paid in full.
• If the debtor does not respond, you may need to take legal action in order to collect on the note.
• File a lawsuit in the appropriate court, depending on the amount of the debt.
• Serve the debtor with a summons and complaint.
• The debtor will then have the opportunity to respond or appeal the complaint.
• If the court rules in your favor, they may order the debtor to pay the amount due.
• Collect on the debt by enforcing the court’s order.
• You can know when you can check this step off your list when the court has ruled in your favor and you have collected the debt.

Payment Reminders

• Create a payment schedule that outlines when payments are due, how much is due, and what the late payment fees will be
• Send out payment reminders prior to the due date for each payment
• Consider using an automated email or text message system to send reminders if possible
• If payment is not made by the due date, send out a second reminder that includes the late payment fees
• Monitor payment activity and document any attempts to collect payment

You’ll know you can move on to the next step when all payment reminders have been sent out and all payments have been collected or documented.

Legal Action

• Consult a lawyer to ensure the terms of the promissory note are legally binding and enforceable.
• Make sure the note includes all relevant information, such as the names of the parties, the amount of money, the due date and penalties for non-payment.
• Have the note reviewed by a lawyer and make sure both parties sign and date the document.
• Make copies of the signed note for both parties, and store them securely.

You’ll know you can move on to the next step when the promissory note has been reviewed and both parties have signed and dated the document.

What Are the Alternatives to an Unsecured Promissory Note?

• Research other options available instead of an unsecured promissory note, such as a secured promissory note, a loan agreement, or a payment plan.
• Consider the benefits and drawbacks of each option compared to an unsecured promissory note.
• Consult with a lawyer or financial advisor to understand the legal implications of each option and help you decide which option is best for the situation.
• Once you have researched the alternatives and determined the best option for you, you can check this step off your list and move on to the next step.

Secured Promissory Note

• Gather information from the borrower, including their full name, address, and contact information
• Establish the terms of the loan, including the amount, the interest rate, and the repayment schedule
• Draft the promissory note using the information gathered from the borrower, and include all relevant legal language
• Have the borrower sign and date the note, and have a witness sign and date the note as well
• Make sure to keep a copy of the signed note for your records

When you have completed these steps, you will have successfully drafted an unsecured promissory note and you can move on to the next step of creating a loan agreement.

Loan Agreement

• Review the terms of the loan agreement and make sure it meets all requirements for an unsecured promissory note
• Confirm that the borrower has the capacity to repay the loan
• Negotiate any changes to the loan agreement with the lender
• Obtain any necessary signatures on the loan agreement
• Once the loan agreement is signed, you can check off this step and proceed to the next step, which is Bank Loan.

Bank Loan

• Meet with the lending bank to discuss the terms of the loan and to review the loan documents
• Complete the loan documents and sign them in the presence of a notary public
• Pay the required fees for the loan
• Ensure the loan is processed and disbursed to the bank account
• Get the loan documents and promissory note signed by both parties
• Upon completion of all the above steps, you can check this step off your list and move on to the next step.

What Are the Tax Implications of an Unsecured Promissory Note?

• Consult with a tax professional to understand the tax implications of an unsecured promissory note.
• Ensure that the promissory note is documented in writing and signed by both parties.
• Determine if any interest payments are required.
• Consider the potential impacts of taxes, such as the self-employment tax, income tax, and capital gain tax.

You will know when you can check this off your list and move on to the next step when you have consulted with a tax professional; documented the promissory note in writing and signed both parties; determined if any interest payments are required; and considered the potential impacts of taxes.

Interest Payments as Income

• Determine the interest rate of the note by looking at the terms of the note and calculating the amount of interest owed
• Calculate the total amount of interest paid throughout the term of the note
• Report the interest payments as income on your tax return
• When you’ve completed these steps, you can move on to the next step - Deductible Interest - to see if you can deduct the interest payments from your taxes.

Deductible Interest

• Understand what deductible interest is - deductible interest is any interest that is paid on a loan and is reported on the borrower’s tax return.
• Determine the amount of deductible interest that will be paid on the promissory note - the amount of deductible interest should be stated in the promissory note.
• Include the deductible interest in the promissory note - the promissory note should include the amount of deductible interest that will be paid by the borrower each year.
• Indicate when and how the deductible interest will be paid - the promissory note should also indicate when the deductible interest will be paid, as well as how it will be paid (by check, wire transfer, etc.).

You’ll know that you’ve completed this step when the promissory note includes the amount of deductible interest, when it will be paid, and how it will be paid.

Reporting Requirements

• Review IRS Publication 550 to determine what type of reporting is required for an unsecured promissory note
• Determine whether the promissory note should be reported as income on Form 1040, Schedule B
• Review IRS Publication 537 for any special tax withholding requirements for an unsecured promissory note
• Determine if any other reporting is required for the promissory note

Once you have reviewed the applicable IRS publications and determined what type of reporting is required, you can check off this step and move on to the next step of how to get legal advice on an unsecured promissory note.

How to Get Legal Advice on an Unsecured Promissory Note

• Research and contact local attorneys who specialize in contracts and promissory notes
• Ask for a consultation to discuss the specifics of your unsecured promissory note
• Ask the attorney questions about the legal implications of the note and get advice on what language and clauses to include
• Once you have consulted with a lawyer, you’ll have a better understanding of the legal requirements and protections needed in your note
• Check this step off your list when you have consulted with a lawyer and have the advice you need to draft your promissory note.

Hire an Attorney

• Research local lawyers and find one with experience in drafting unsecured promissory notes
• Schedule an appointment to discuss your situation and needs
• Bring documents, such as the borrower’s and lender’s contact information, the amount of the loan, and the terms and conditions of the loan
• Review the documents and ask questions about the promissory note and other related legal matters
• Once you have a complete understanding of the process, hire the attorney and pay the fee
• You will know this step is complete when you have hired an attorney to draft the unsecured promissory note.

Research Online

• Research online to gain a better understanding of what an unsecured promissory note is and its components
• Familiarize yourself with the language and terminology used in promissory notes
• Read up on the applicable state and federal regulations and laws governing the creation of a promissory note
• Understand the importance of the interest rate, repayment terms, repayment schedule, and other key details of the document
• Once you have a good understanding of all of the components of an unsecured promissory note, you can move on to the next step in the process.

Consult Community Resources

• Contact a local small business association (SBA) to get advice on writing an unsecured promissory note
• Ask a business attorney in your area for advice on drafting an unsecured promissory note
• Research online for state-specific templates and guidance on drafting an unsecured promissory note
• You will know when you can check this off your list when you have a good understanding of the guidance, advice, and templates available to you.

FAQ

Q: How does the Unsecured Promissory Note differ from a secured loan?

Asked by Tim on April 7th, 2022.
A: An Unsecured Promissory Note is a loan agreement between two parties where no collateral is required to secure the loan. A secured loan is a loan agreement between two parties where collateral is required to secure the loan. The lender can use the collateral as a way to recoup their losses if the borrower defaults on the loan. An Unsecured Promissory Note does not require any collateral and as such it carries more risk for the lender as there is no guarantee that they will be able to recover their funds if the borrower defaults on the loan.

Q: What legal considerations should I be aware of when drafting an Unsecured Promissory Note?

Asked by Mary on June 15th, 2022.
A: There are many legal considerations to take into account when drafting an Unsecured Promissory Note. The most important are that the Note should accurately reflect what was agreed upon between the parties and be legally binding. It should also include provisions for interest rates, repayment schedules, and default clauses. Depending on your jurisdiction, there may also be additional legal requirements such as consumer protection laws or contract laws that you need to abide by. Finally, you should ensure that you are familiar with any applicable tax laws and regulations so that you can ensure that your agreement complies with them.

Q: What do I need to know about UK law when drafting an Unsecured Promissory Note?

Asked by Sarah on August 12th, 2022.
A: When drafting an Unsecured Promissory Note in the UK, it is important to be aware of various consumer protection and contract laws which may apply depending on the circumstances of your agreement. In particular, you should ensure that any interest rates imposed are fair and reasonable for both parties involved and that any clauses regarding default are clear and unambiguous. Additionally, you should ensure that any taxes due on the agreement are paid promptly and correctly in order to avoid any potential issues with HMRC.

Q: What do I need to know about US law when drafting an Unsecured Promissory Note?

Asked by Ryan on October 21st, 2022.
A: When drafting an Unsecured Promissory Note in the US, it is important to be aware of various consumer protection and contract laws which may apply depending on the circumstances of your agreement. In particular, you should ensure that any interest rates imposed are fair and reasonable for both parties involved and that any clauses regarding default are clear and unambiguous. Additionally, you should ensure that any taxes due on the agreement are paid promptly and correctly in order to avoid any potential issues with federal or state tax authorities.

Q: What do I need to know about EU law when drafting an Unsecured Promissory Note?

Asked by John on January 3rd, 2023.
A: When drafting an Unsecured Promissory Note in the EU, it is important to be aware of various consumer protection and contract laws which may apply depending on the circumstances of your agreement. In particular, you should ensure that any interest rates imposed are fair and reasonable for both parties involved and that any clauses regarding default are clear and unambiguous. Additionally, you should ensure that any taxes due on the agreement comply with all applicable EU regulations in order to avoid any potential issues with EU authorities.

Q: What additional measures can I take to protect myself when drafting an Unsecured Promissory Note?

Asked by Matthew on March 18th, 2023.
A: There are several additional measures which can be taken when drafting an Unsecured Promissory Note in order to protect yourself from potential risks or liabilities arising from default or other unforeseen circumstances. Firstly, it is important to include a clause which allows either party to terminate or modify the agreement if certain conditions arise or certain events occur during its term. Secondly, it is also advisable to include language in the document which clarifies each party’s respective rights and obligations under the agreement in order to minimize misunderstandings or disputes in the future. Finally, it is also wise to seek legal advice prior to signing any documents in order to ensure that all legal requirements have been met and all necessary protections have been included in your document.

Example dispute

Lawsuits Involving Unsecured Promissory Notes

• An unsecured promissory note is a written promise by one party to pay another party a specific amount of money at a specified date.
• If the promissory note is not repaid according to the agreed-upon terms, the holder of the note may take legal action and file a complaint against the debtor.
• The plaintiff in the case will need to provide evidence of the existence of the promissory note and prove that the terms of the note were not met.
• The plaintiff may also seek damages or other compensation if the promissory note was breached.
• Settlement can usually be reached through negotiation between the parties, but if not, the case may proceed to trial, where a judge or jury will decide the outcome.
• If the plaintiff is successful in the lawsuit, the court may order the debtor to pay the full amount stated in the promissory note, as well as any interest, costs and attorneys’ fees.

Templates available (free to use)

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