What Happens if an Individual Refuses to Pay a Promissory Note?

A promissory note is a written and signed agreement whereby the signer of the note, or promisor, promises to pay a certain sum of money to the payee. A promissory note is an unsecured debt, meaning it isn't attached to a physical asset, such as a home or land. Once signed, the promisor is responsible for payment of the agreed upon amount and can face legal consequences if the note isn't paid.


By signing the promissory note, the signer agreed to be unconditionally responsible for payment of that debt. A default on that agreement is a legally actionable offense. The owner of the promissory note can file a civil lawsuit against the signer of the note if the signer refuses to pay. The purpose of the lawsuit is to obtain a judgment against the note's signer, which will give the owner of the note the ability to pursue the signer's assets.


Depending upon the laws in each individual state, a judgment may allow the judgment owner to seize the funds in the signer's bank accounts up to the amount granted in the judgment. The judgment owner may also place a lien on property owned by the signer, such as real estate. If the signer is employed, the judgment owner might be able to seize a portion of the signer's wages. This is called a wage garnishment and would remain in effect until the judgment amount is satisfied.


Promissory notes, like other forms of debt, have a statute of limitation under state law. Once the debt ages beyond this date, the signer of the note is no longer legally responsible for its payment. Statutes vary from state to state. In Nevada, the statute of limitation on promissory note debt is three years, but in Ohio it's 15 years. Once a judgment is issued against the signer, that judgment then has its own statute of limitation that may be much longer. The statute of limitation on judgments in Nevada is 10 years and in Ohio it's 21 years.


The owner of an unpaid promissory note may not have the time, or desire, to pursue legal action against the signer of the note. Instead, the owner can sell the debt to a collection agency. The agency then becomes the owner of record for that debt and has the right to pursue collection efforts against the signer, including filing a lawsuit. Even if the signer currently lacks assets, the agency can obtain a judgment and then seek to seize assets that the signer may accumulate in the future.