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If a borrower and a lender go to Beis Din with a loan document that stipulates interest, but the borrower claims he can at least collect the principle, how does Beis Din look at that?

Do they recognize the loan document, but invalidate the interest, or do they invalidate the entire loan document as illegitimate and uncollectible?

What if the borrower or the lender claim that the interest was written into the document for legal reasons, but in fact they did not intent to charge/collect it. Does that change the answer? Does it matter which one is making the claim?

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"Do they recognize the loan document, but invalidate the interest, or do they invalidate the entire loan document as illegitimate and uncollectible?" Or do they, perhaps, validate the entire document (in hilchos sh'taros or halvaa) but bar collection of the interest (because of Yore Dea)? +1, in any event. –  msh210 Dec 24 '13 at 7:01

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The Shulchan Aruch Hilchos Ribbis Yorah Deah Siman 161 Sif 11 states that a loan document that stipulates interest - regardless if the nature of the interest could be categorized as forbidden according to the Torah or a Rabbinical prohibition - can be used to collect the principle of the loan only and not the interest on the condition that it's obvious from reading document that this loan has a interest condition (e.g I.O.U $100 plus 10% interest) or the loan document only has the principle but there are witnesses who testify that there was a interest stipulation to the loan. However if it's not clear from the document that there is a interest stipulation in the loan (e.g. I.O.U $110) then the document can not be used even to collect the principle.

[NOTE: I am note a professional translator so please look up the source yourself to get a better understanding. EDITORS: If you think that my translation is not up to par FIX IT ! don't just rank on me in the comments]

Next part of your question:

I spoke to Rabbi Pinchas Vind author of the sefer "Bris Pinchas" on the laws of Ribis who told me that if the interest stipulation is written into the document regardless of the intention to collect or not it still would be forbidden since in theory the lender (or his children after death) could go to a court of law and demand that the loan be repaid. He mentioned that there are some Rabbis who pasken such an arrangement is ok so if your question is on of practical halacha you should consult with a Rabbi who is familiar with these laws to help you out.

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