My Dad Borrowed $50,000 and Paid Me Back. Why Was It a Complete Disaster?

Borrow or Loan money from family

Here’s an unusual story: A woman lends a relative a boatload of money. He pays her back. In full. With interest.

End of story, right?

Wrong. Read further.

Chelsea, a freelance photographer in her late 30s, reached out to me on Facebook. All I had to do was mention “family” and “loans” and she raised a virtual hand. “Let me tell you about my dad,” she wrote me.

We spoke at length and she shared her story.

Her father was larger than life and financially successful by all external appearances, Chelsea told me. He retired early after serving as the CEO of a Fortune 500 company. He and his second wife, Lola (Chelsea’s stepmother) lived in ritzy West Palm Beach, owned a condo in Denver, and travelled often. They lived the great life.

And why not? Her dad worked hard during his long career, and not just running The Big Famous Company; he also started businesses in various industries. “Making money was never an issue for him,” she explained to me.

How the loan began.

Chelsea was 28, newly married to Carl, and they had just bought a house (at, what we now know, was the height of the real estate boom).

Dad wanted to borrow $50,000 from Chelsea to buy several frozen yoghurt franchises. It was a short-term loan; he assured her he needed the money for only thirty days to cover a cash flow crunch.

Chelsea didn’t hesitate. “I didn’t even think about it. Never occurred to me that it might be a problem.”

She agreed to loan her dad the money, without discussing it first with Carl. Contrary to what you might expect, her decision was never an issue in their marriage. Carl “wasn’t super excited” but he didn’t protest.

They took a home equity loan and gave the cash to Chelsea’s dad, without a written agreement.

Thirty days go by. Dad sends her the monthly interest payment on her loan, but says he needs another thirty days to pay back the $50,000 principal.

She agreed, but he kept procrastinating. In her father’s mind, it shouldn’t be a concern for Chelsea. “What’s your problem? It’s not costing you anything, I’m paying the interest,” he brushed her off.

A year after the loan.

The frozen yoghurt shops failed and her father sued his business partner. He lost the lawsuit, plus all the money he sunk into that venture.

Dad’s wife Lola knew nothing about her husband’s finances. She was clueless that he borrowed from his daughter and had a long string of unsuccessful businesses. Meanwhile, they enjoyed extended vacations at posh resorts in Bermuda and Paris. Lola always had the latest Prada outfits and whatever cars she wanted. A sleek yacht was docked at their mansion.

In contrast, Chelsea and Carl lived frugally. But she didn’t care how her dad spent his own money.

Until now.

How could he afford his lavish lifestyle but couldn’t — or wouldn’t — pay her back? She was annoyed, but didn’t say anything directly to him. She sort of hinted around about the loan.

For the first time, Chelsea saw the cracks in her father’s facade. He wasn’t an upstanding man who kept his word. She lamented to me, “He was no longer my dad; he was just an ordinary person.”

Chelsea didn’t want to get stuck with the loan balance. What if something happened? Her concern was legitimate; by now they had a baby and she had to quit her job. Carl worked overtime to cover their growing expenses. Their house plummeted in value.

Her dad agreed to pay back $20,000 of the original loan; less than half, but at least it was a good chunk of the outstanding debt.

Two years after the loan.

Fast forward. It’s now two years since Chelsea blindly handed over $50,000 to her dad. “One day, I just lost it, I was done,” she told me. “I called him in tears and told him, ‘I need you to pay me back. It’s costing me sleep and peace of mind. Carl and I argue frequently about it.'”

It was a lie.

She and Carl never discussed the outstanding loan. It wasn’t a cause of friction in their marriage.

Yet Chelsea knew how to hit her dad exactly where it counted.

Her trick worked. She could hear it in his voice. He faltered, “Carl wants me to pay it back?” He didn’t want his only son-in-law to think poorly of him. Maintaining the image of being a super-successful man was his paramount concern.

Chelsea and her dad got into a heated argument. He said, “You’re my only kid. You’ll get all my money when I die. Or else you can get the rest of this loan now and that’s all.” He slammed down the phone.

In shock, Chelsea realized that her dad never had any intention of paying her back. Or that if he did repay the debt, she’d be disinherited.

Three days later, Chelsea and her dad managed to have a calm conversation. He promised to send the $30,000 balance in a few weeks.

Loan paid in full.

Surprise.

He did. Paid his debt to her in full. Including interest.

Chelsea assumed her dad took the money out of his 401(k) account. She knew that top executives received compensation packages with healthy retirement benefits.

Unusual, isn’t it?

I’ve chronicled many instances of loans between family members and friends that went bad. The borrower welched. Relationships and finances were destroyed forever.

Not the end.

But that’s not the end of Chelsea’s story.

Not by a long shot.

Two years after paying her back, Chelsea’s dad passed away. She and her stepmother Lola were the sole beneficiaries of his trust.

Meaningless.

Horrified, they discovered that there were no assets. None.

On the contrary, a mountain of debt — of Everest proportions — loomed large. The West Palm Beach mansion was engulfed in a $1.5 million mortgage and home equity loan. Dad owned his mother’s house in Portland, but it was deep underwater. He owed at least five years’ back federal and state income taxes. Payroll taxes for employees of his numerous businesses around the country were unpaid. Lots of outstanding loans to vendors and lenders totaled over $3 million.

How had an accomplished, shrewd, businessman messed up so badly?

Chelsea shared her theory with me:

It’s like he had a gambling problem. He’d get a brilliant idea, borrow money from people, and start a business. When you have an existing company, people aren’t too interesting in investing. But if you have an exciting new concept for a product or service, people will jump at the chance to be a part of it. His downfall was that he never thought the whole idea through. He’d get impatient and wouldn’t give the business enough time and money to grow.

The more Chelsea dug as she tried to settle the estate, the more worms crawled out from under the financial rocks.

Remember when he paid her the final $30,000 out of his 401(k) account?

Wrong. He had sucked that account dry.

Chelsea discovered that her father borrowed $100,000 from his brother. She can’t be sure, but Chelsea thinks that was the source of her repayment cash. And it wasn’t any surprise that her uncle was left high and dry on his loan.

Out of the wreckage.

Chelsea is resourceful. She rescued the frozen yoghurt business, sold it to the managers, and the owner-financed payments will support her dad’s widow Lola for several years.

She wasn’t surprised she didn’t inherit a fortune, but Chelsea was annoyed that she spent a considerable amount of time straightening out the mess of her dad’s botched financial affairs.

I asked her what caused it all. She answered quickly, “Not being honest with his wife. A lot of his problems stemmed from covering up the money problems, spending money he didn’t have, trying to keep up big appearances, and being unable to admit it wasn’t going so well.”

I asked her, “Would you do it again? Loan the money to your dad?”

“No way,” she said. “If a person can’t get money from a bank, then they don’t know what they’re doing.”

Fortunate for Chelsea, she didn’t lose any money, and her marriage was unaffected by the whole debacle.

However, she lost something much more significant: respect for her father.

Have you ever loaned or borrowed money from family? How did it change your relationship?

Want more stories? Sign up for my newsletter – up, up, upper right corner!

Get a whole book of stories! Read the award-winning Gold Diggers and Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin

Related Posts:
The 7-year-old Who Supported Her Dad
I Loaned and Lost $5,000. I’m Not Rich. Why Was it No Big Deal?
Would You Loan Your Family Money, Even if You Knew They Lied to You?
Your Rich Aunt Dies and Leaves You a Fortune – Now What?
How to Loan Money to a Friend

Image © iStock.com/Kiyyah

Comments

  1. Whoa. Lots of lessons there, I guess starting with if someone (relative or otherwise) looks like they don’t need a loan, but they’re asking for one, there’s going to be a lot of excitement at some point.

    • Hi Paul,

      Good point! It’s sort of the inverse of applying for a bank loan: You have to prove you have good credit and are financially stable enough that you don’t need the loan .. in order to get the loan.

      Thanks for stopping by!

  2. I read the brief excerpt of this post on your page and I was sucked in. I couldn’t stop reading this post. That story is so shocking, and yet I don’t find it surprising. I have loaned money to various family members over the years (never $50,00). Over this period of time I’ve come to realize that if I loan money to family members, then I probably won’t get it back. Or if I do, it will only be part of the loan and it will take a long time for them to get around to paying it back. Due to these brushes with family loans, I’ve made a decision to never loan money to anyone friend or family because not only can it be stressful, it can be extremely awkward.

    • Hi Gina,

      It sounds like you’re a generous person; the actual dollar amounts don’t matter. You’ve probably made the right decision to stop being everyone’s Bank of Gina. Thanks for sharing!

  3. Wow. What a story. The loan was one thing but the messy clean up after his passing, which would have happened with or without the loan, seems bigger than the money itself.

    Scary thought for Chelsey that if she hadn’t shamed him into paying it back in full she would have been out the $30K AND still have to clean up the mess!

  4. When I first graduated and got a nice job, my sister hit me up for a loan within 2 months. Not wanting to be her “new bank” my wife and I discussed it and agreed we’d loan her the money. IF she signed a notarized contract, agreeing to payback principal and interest and set up a repayment schedule. We never got asked for money again. 🙂
    I just avoid it now. I love the sentence, “If a person can’t get money from a bank, then they don’t know what they’re doing.” – brilliant!

    • Hi Mr. SSC,

      It sounds like you and your wife had a great approach by insisting that your sister formalize the loan. She wasn’t willing, so you probably avoided losing money that you had just started earning.

      Thanks for stopping by!

  5. I have only borrowed money from my parents and I am lucky enough to be a few months away from paying it all off. It really does go to show just because you have that Benz in the parking lot or million dollar home doesn’t mean you are really rich, if anything it may be the exact opposite.

    • Hi Even Steven,

      That’s wonderful that you’re close to paying off the loan to your parents! I write about “train wrecks” that happen when people combine their personal and financial relationships. It’s much better to hear success stories like yours!

      And you’re right about appearances being deceiving. Have you read The Millionaire Next Door?

      Thanks for sharing.

  6. That’s a great cautionary tale. I would certainly not loan any money with my family.

    • Hi Adam,

      Thanks for stopping by! You’re correct, in almost all situations it’s a disaster when people loan cash to relatives and never see it again. The bad blood can be worse than the loss of money.

  7. Wow, that is such a sad but cautionary story. I have always heard not to mix business with family and this is a good example of why. Although, I can’t say that I wouldn’t help if I didn’t have the money, its hard to say know to family, especially parents!

  8. What a story. Lots of lessons here and there. Thanks for sharing the story.

    • Hi BeSmartRich,

      Thanks go to “Chelsea” who generously shared her story. I’m always humbled when people confide in me about the troubles they’ve had when mixing their financial and personal relationships.

  9. Wow, that’s quite a parable. Reminds me that I loaned $1,000 to my youngest brother for an engagement ring once upon a time. He’s past his 20th wedding anniversary, and I haven’t seen a payment yet! Oh well…

    • Hey Kurt,

      Hmmmm, lets see, $1,000 with interest paid back 20 years later would add up to … Just kidding. Sounds like you haven’t let it hurt your relationship with your brother over the years – that’s a good thing. Thanks for sharing!

  10. I have read this story again and again, like you Valerie. I decided to do something to help people with it, because not getting paid back for friend and family loans happens far too often.

    I believe that building a system around the loan will help, which is why I founded Money Mola. It is not ready to launch quite yet (expected in September), but if you want more info, check out MoneyMola.com.

    The site is a brand new way to manage loans with family and friends. We give you all of the tools banks use to get their money back for when you have loans with relatives and friends. Auto-pay, reminder emails, interest calculations, and more all done for you.

    • Hi Eric,

      Wow, that sounds like a great concept: a user-friendly middleman to put a bit of distance between borrower/lender. Let us know when it’s available!

  11. This is such a wonderful article b/c it teaches contentment. I won’t lie. Sometimes I will see someone with a nice handbag or vehicle and think, “Screw this frugal crap, I want a Louis Vuitton!” But my husband always reminds me that we can have what everyone else has too. All we need it to sign on the line for payments. The very people you envy could be the ones in financial shambles behind the scenes. We don’t want that at all!

    • Hi Aja, thanks for your honesty! I’m sure we all feel that way sometimes: tinges of envy. Sounds like you and your husband are on the right track! (And they call it “Lousy Vinyl”!)

      Thanks for stopping by!

  12. My sister in law has borrowed money several times. A few from me alone. A few from us together. She paid back the first couple after lots of asking on my part. Nothing in years, though. It’s definitely strained our relationship with her when she does things like getting tattoos and going to the spa while not even throwing $20 our way. I tried to convince my husband that this last time was more of a gift because we would never see a repayment but he is so sweet and good hearted that he believed her words that she would pay us. She hasn’t, of course. Just many lies through texts and, on occasion, right to our faces. At this point, I’m not even sure if she has a job. She lives at home with her parents at 40 years old. It’s frustrating to be taken advantage of and not cared enough about to not be lied to. But the lesson has finally been learned. Although I learned it a couple years before my husband. I’m glad he’s on the same level about it as I am now.

    • Hi Laura, thanks for sharing your story! It must have been hard for you to watch your sister-in-law in action while your husband was caught in the middle. It sounds like you were finally able to get him to see her bad behavior and to stop facilitating it by continuing the loans. It’s great that you and your spouse now agree, although of course it’s a shame that the experiences strained the relationships with his sister.

      Thanks again!

  13. “Oh what a tangled web we weave.” Loaning money is not a great idea. Good story, good outcome.

  14. Val – greetings from England old friend! Remember me from Sydney Uni Law School days?

    What a great article, thank you so much for sharing. It made me realise how adept some people are at portraying a certain image of themselves. Clever use of smoke and mirrors!

    I have just come back from Aus because my Mum sadly passed away in September. While I was out there I discovered that her ‘friends’ that had been helping to care for her had also been fleecing her of her money. We think the total amount taken is in the region of $150,000.

    Unfortunately financial abuse of the elderly and vulnerable is rife. And the perpetrator was using the money to fund his own lavish lifestyles! I’m pleased to say that he was arrested on the morning that my Mum died. She would be happy that this shyster’s nefarious activities will be punished.

    I hope all is well with you. It’s great to be reading your articles and remembering the fun times we shared in our Uni days.

    Love

    Simon

  15. Simon, how could I ever forget you! Thanks for getting in touch. I’m sorry you lost your mum and of course sorry she was swindled. You’re absolutely correct, elder financial abuse is a huge problem that is only getting worse. Good on you for pursuing the thieves. She would be proud.

    Thanks again for reaching out! I’ll get in touch with you off-line.

  16. I recently borrowed money from my Dad, and I haven’t been able to pay it back since we struggle to pay bills most months. Now my youngest sibling is calling me weekly asking if I have any of the money I owe him. He recently told me not to stress about it and get it back to him when I can. I’m getting frustrated that she is treating my debt to him as if it is to her. He pays nearly all of her bills, and wants to start acting like a collection agency when I borrowed money once to help pay my rent for one month. How do I tell her that it’s none of business, and my debt to him is between us? I am worried about my relationship with her.

    • Hi Stevie,
      Thanks for sharing. It sounds like you’ve got a complicated family history of lending, borrowing, and interfering. The loan between you and your dad is none of your sister’s business. Perhaps you can find a diplomatic way to tell her that your dad is a grownup and doesn’t need her help as a debt collector

      I hope you can improve your financial situation so that things aren’t such a struggle. There are lots of great resources on the Internet about budgeting, cutting costs, and increasing income. Good luck!

  17. Something very similar is happening in my family right now. Except double the loan amount from $50k to over $100k. I loaned my dad $120k over the last 2 years and received one payment in the amount of $10k that he borrowed from his brother to pay me. It’s really sad because he owes me and my mother (his first ex-wife) and my eldest brother. I think in total he owes family members almost $200k. He is in financial ruin and this situation is so nerve wracking. I have lost all respect for my dad and I am very upset he was so careless throughout his entire life. Our relationship is irreparably damaged. I wish I could go back and say no but I was only trying to help. The saying “No good deed goes unpunished” is definitely true.

    • Margo,

      I’m sorry to hear about your family situation. Large sums are involved and it’s unfortunate that the damage to your relationship is irreparable.

      Thank you for sharing.

  18. Joanna Arroyo says:

    I am really tired of people owing me money. My family always wants to borrow money from me. Although the amount has never exceded 10000 it does irritate me. I am currently unemployed looking for a full time job to pay the debt I have from credit cards used to pay for family’s rent and personal things. My dad owes me over 2000 dollars and my sister owes me less than a thousand. Your family will always try to use you if you do not know how to say no to them. I am so tired of them asking me for money. I promise to God this is the last time I let them borrow anything. It is like they do not want me to have any money to myself. I am single and unmarried and trying to support myself.

    • Hi Joanna,

      It sounds like you do need to draw the line and not loan any more money to your family. Good luck. Good luck finding a new job!

      Thanks for your comments.

  19. Tamara Miller says:

    I have three experiences with this so far:

    1) Last year, I loaned $3,000 to a friend I had known for about 8 years. We no longer live close by, but we keep in touch. She was desperate. She didn’t balk at all about drawing up a contract through a free web site, digitally signed by both of us and acknowledged via email so that we both have a digital copy of it. She’s paid me $65 every two weeks for over a year now, and on the rare occasion she can’t pay, she gives me a heads up in time to update my finances accordingly. We’re still on great terms, and the loan just “happens” to be there.

    2) I borrowed $27,000 from my parents earlier this year for a down payment on my house. I had the money in savings, but they wanted me to have an emergency fund. They loaned it to me interest free, with no set repayment terms or due date. Less than a week later, on the following payday, I immediately began paying them back $100/paycheck, and increased it to $120 when I got a cost of living raise in January. I am already set to increase it to $144 when I get a raise next month, and up to $172 when I get my next cost of living raise in January. I’ll continue to increase the payment by 20% every time I receive a pay increase until it’s paid in full. I keep meticulous track of my payments, and my remaining balance due.

    3) After a few money crises this year had depleted my emergency fund, I had a friend of over 20 years who was in financial crisis. I had no money to loan her. She’d maxed out her credit cards, at about $35,000. As I always pay off my balance in full every month, and had plenty of unused available credit, I offered to help her out: she could do balance transfers from her cards to mine, in order to free up her available credit and help her score. She was to make paying off the remaining balance on her own cards a priority in order to boost her score, pay the minimum payment on mine, and then get a new card (with her great new credit) and do a balance transfer off of mine. I knew my score would go down temporarily, but didn’t think the whole thing would last more than about 6 months. Additionally, I added her as an authorized user on one of my cards that’s at 0% interest until March. This would help her credit, and I trusted that she’d keep the balance paid off as I always do. The next thing I know, she’s complaining to me that she can’t pay for things because her cards are maxed out (again), and so is the one I added her as an authorized user on! Rather than paying off the cards, she’d gone and maxed them out again. I’d really trusted that she’d learned her lesson, but I guess not. I finally had to go spastic, order her to cut up the card she was an authorized user on (which she fought, claiming she needed the “rewards dollars” to help pay me back) and changed all of my account information. I said instead of paying the cards, she was now going to pay me directly. My credit has gone from a 787 to a 580, she now owes me over $32,000, and the last payment she made was for…$35. I’m now forced to make the minimum payments out of my savings every month. I asked her to put the loan and repayment terms in writing two months ago, and she refused and said I sounded like I didn’t trust her. I have a spreadsheet with the payment amounts on it, that I update every time she makes a payment, and email to her. I’m hoping that it’s enough of a paper trail.

    I feel like our friendship is blackmailed by the money. I can’t be myself around her, because I’m worried that if I offend her she’ll just block my number and that’ll be it.

    In short, I will NEVER loan money to a friend again.

    • Hi Tamara,

      #1 and #2 – It sounds like you’re organized and disciplined. The stories about borrowing money from friends/family turned out surprisingly well. (Although do check with an accountant about the loan without interest as there could be consequences for your parents.)

      #3 – No so much. She wouldn’t put the repayment terms in money because you didn’t trust her? She was right about that. And for good reason.

      Thanks for sharing your stories.