Been there .... here's how it happened for us:
Relative asked for quite a bit of money as a loan.
We said that the sum in question HAD to be a LOAN because it was too much to be a gift. As a potential lender, we said we'd consider it, but wanted first to do what any lender would do - and that was get a full picture of their debts, income etc. They told us and we were able to determine that they needed something different than a loan - they needed a good bankruptcy attorney, to hand back the fancy car, etc. We recommended financial experts, etc ---- and we gave them a very small loan - one we hope to get back but one we will not feel terrible if we don't.
No hard feelings on either side .......