IOU document pack

An IOU is the smallest legally meaningful piece of paper. It says one thing — 'I owe you' — and that one thing is enough to win a small-claims case if it ever comes to that.

Who this pack is for

You're loaning a small amount of money — under $5,000, no interest, due by a specific date — to someone you trust but want a paper trail with anyway. Maybe a friend needs help making rent and will pay you back next paycheck. Maybe a family member needs a bridge until a tax refund clears. Maybe you split a vacation expense and your travel partner will reimburse later. You don't want the formality of a promissory note with interest schedules and default clauses; you want a one-page acknowledgment that the money is owed and when it's due.

When to use it

Sign the IOU at the moment of the loan — both parties present, both signing. The borrower writes (or you write and they sign) acknowledging the amount, the date, and when it's due. For amounts under $1,000 between close family or friends, an IOU is appropriate. For amounts $1,000+, with interest, with a payment schedule, or where the relationship is professional rather than personal, use the promissory note instead — its enforcement language is stronger. For amounts over $5,000–$10,000, even between friends, the promissory note is worth the extra five minutes.

What it doesn't cover

The IOU is intentionally minimal: amount, due date, signature. It does not include interest (use a promissory note for that), late fees, default acceleration, attorney-fee recovery, or any security interest. It does not work well for installment payments — the IOU contemplates a single lump-sum repayment by the due date. If the borrower can't pay in full by the due date, you can renegotiate by signing a new IOU or a payment plan agreement, but the original IOU doesn't have a built-in workout mechanism. It does not address tax treatment of forgiven debt — if you forgive an IOU above $18,000 (the 2025 annual gift tax exclusion), gift-tax rules apply.

Common questions

Is an IOU legally enforceable?

Yes — an IOU is a written acknowledgment of debt and is enforceable as a contract. To win in small claims court on an IOU, the lender shows: the loan was made, the IOU is genuine (handwriting, signature, date), and the amount hasn't been repaid. The borrower's defenses are limited — denying the signature, claiming repayment, or claiming the statute of limitations has run. For amounts under most small-claims jurisdictional limits ($5,000–$10,000), an IOU plus a copy of the bank transfer or check is enough.

What's the difference between an IOU and a promissory note?

Functionally, both are debt acknowledgments. The IOU is short and informal; the promissory note is detailed and formal. The IOU is for small, simple, no-interest loans between people who trust each other; the promissory note adds structure for larger amounts, interest, payment schedules, and explicit default remedies. Practically: if the loan is over $1,000 with a payment plan, use the promissory note. Otherwise, an IOU is enough.

Should the IOU be witnessed or notarized?

Not required, but adds enforceability. A notarized IOU makes the borrower's signature very hard to deny in court. For amounts under $1,000, an unwitnessed signed IOU is fine. For amounts above $5,000, notarize even if you'd otherwise leave it informal — the small extra step protects against later disputes.

What's the statute of limitations on an IOU?

Depends on whether the IOU is a 'written contract' or 'oral contract' under your state's statute. A signed IOU is a written contract in most states, with statutes of limitations from 4–10 years. Unsigned acknowledgments may be treated as oral contracts (shorter SOLs, 2–4 years). Sign every IOU you write or accept. If you receive a partial payment, the SOL clock typically resets — keep records of any partial repayment and dates.

Can I charge interest on an IOU?

Technically yes, but the IOU's typical structure doesn't include an interest field. If you want interest, use the promissory note instead. Adding 'with interest' to an IOU without specifying a rate makes the rate ambiguous; courts may impose the legal rate (statutory rate that varies by state, often 5–10%) or void the interest provision entirely. Be specific or use the promissory note.

What if the borrower disappears?

Document the loan (the IOU plus bank/check/Venmo records of the actual transfer), wait until the due date passes, send a written demand by certified mail (Pike has a debt-settlement letter pack), and if nothing happens, file in small claims. Most small-claims courts allow you to serve by certified mail or publication if the borrower's address is unknown. For amounts under $5,000, the case usually settles or wins by default once the borrower is served.

What about taxes — is the loan deductible if I never get paid back?

Personal loans (between friends and family) that go bad are 'short-term capital losses' if proven worthless and properly documented (Form 8949). The IRS scrutinizes these — you need genuine evidence the loan was a loan (not a gift), evidence of attempts to collect, and evidence the borrower can't repay. The IOU plus your collection efforts are part of that evidence. For business loans gone bad, the rules differ; talk to a CPA.

Pike provides plain-language legal information, not legal advice. State and local rules change. If money, custody, or your housing is on the line, talk to a licensed attorney or your local legal aid office.