"Neither a borrower nor a lender be" is one of the more famous lines uttered by Polonius in Hamlet.
For those of you, like me, who didn't always pay great attention in high school English class, Polonius was counsel to King Claudius' and father to Laertes and Ophelia, Hamlet's girlfriend. Frankly, Polonius was a bit of gasbag. He also was often mistaken in his perceptions. On the occasion of Laertes' heading off to study in France, Polonius offered a rather long-winded speech full of fatherly advice.
I have always felt for Laertes in this situation. As a young person about to start making his way in the world. Laertes probably did not want listen yet another speech from his talkative father. We usually love our parents, want to make them proud, and indulge their eccentricities. But unless Polonius had saved up all his wisdom for the last minute, Laertes must have heard some version of this speech many times before by this point in his life.
Amidst the now trite comments such as "Give thy thoughts no tongue" and "To thine own self be true," Polonius utters this famous little gem:
Neither a borrower nor a lender be;
For a loan oft loses both itself and a friend,
And borrowing dulls the edge of husbandry.
Polonius is making at least two points here. The first is about relationships and the second is about economics. The second, that "borrowing dulls the edge of husbandry," we can put aside for the moment. That debt repayments cut into profit is pretty apparent to most folks.
The first point though, that lending between friends and family carries its own special challenges, is worth addressing. This is one of the few times when it might really be worth listening to Polonius. If you're going to be a borrower or a lender, it is easier to do so with strangers than with family or friends.
People in financial difficulty often turn to family and friends for help. It's great when people have that kind of support structure around them. And I don't want to tell people not to rely on family and friends when they are in trouble.
But I do want to caution people that transactions with family carry risks that doing business with strangers does not. The most common risk that I see with my clients is the Loan That Cannot Be Repaid Anytime Soon. Let's call it the LTCBRAS.
Here is an example:
A client sitting in my office explains that he or she borrowed money from a family member. This client is now contemplating filing a bankruptcy case. Once I hear about the loan from the family member, I explain that the client will be doing the family member no favors by repaying the loan before filing the bankruptcy.
A loan repayment to someone like a family member within a year before filing a bankruptcy case is called a "preference." If the debtor repays the family member within a year before the bankruptcy case, the chapter 7 trustee will sue the family member and have an easy time recovering the money. That money, rather than going to the client or the family member, will go to the trustee, the trustee's lawyers, and to creditors. So the client has the option of: (a) not repaying the debt at least until after bankruptcy; (b) handing the family member a lawsuit; or (c) waiting at least a year after paying back the LTCBRAS before filing the bankruptcy case.
All of this can cause a strain on the relationship. As Polonius said, the loan can lose both itself and a friend.
Here I want to talk about the difference between moral obligations and legal ones. The law does not impose moral obligations by itself. When a commercial lender extends credit to you, you have a legal obligation to repay it. You do not necessarily have a moral obligation to repay it. That is because the law treats commercial transactions amorally. The law requires you repay the obligation not because there is an ethical or moral reason to repay it, but because our system of economics works best when people fulfill their obligations.
When debts are settled or discharged in bankruptcy, the debtor does not have a legal obligation to repay the debt. So for example, the typical client who cannot repay the loan to the family member before bankruptcy no longer has a legal obligation to repay the debt after it has been discharged. Whether they have a moral obligation is another matter entirely.
I often explain to clients that I am their lawyer, not their minister/priest/rabbi/parent or even trusted friend. Whether the client believes that they have a moral duty to fulfill a particular obligation is not for me to answer. But as their lawyer I also can tell them that there is no legal prohibition on repaying that debt after it has been discharged. And with luck the relationship will remain intact regardless of the status of the debt.
As long as both parties to the familiar transaction understand that the debt might not be repaid for a long time (or maybe never) the loan between family members or friends is not necessarily troublesome. But when money is changing hands between familiar parties with the expectation that it will be repaid soon, that can be a real problem.
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