In the Philippines, the termination of a loan contract—whether through expiration of the term, acceleration due to default, or formal rescission—does not extinguish the underlying debt. Many borrowers mistakenly believe that once a contract is "terminated" or "canceled" by the bank or lending institution, the legal obligation to pay disappears. In reality, termination often triggers the lender’s right to judicial recourse.

1. The Right to Sue Post-Termination

Yes, a lender can absolutely file a case after a loan contract is terminated. In fact, termination (specifically through an Acceleration Clause) is usually the legal prerequisite for filing a collection suit.

When a borrower defaults, the lender typically "terminates" the installment arrangement and declares the entire balance due and demandable. This creates a cause of action, allowing the lender to seek relief from the courts.

2. Legal Grounds for Collection

The primary legal basis for debt collection in the Philippines is Article 1159 of the Civil Code, which states that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith.

Depending on the nature of the loan and the amount involved, the lender may pursue several legal avenues:

Small Claims Cases: If the principal debt (excluding interests and costs) does not exceed PHP 1,000,000.00, the lender can file a case in the Metropolitan or Municipal Trial Courts. This is a summary procedure where lawyers are not allowed to represent parties during hearings.
Civil Action for Sum of Money: If the amount exceeds the small claims limit, a regular civil case for "Collection of Sum of Money" is filed.
Foreclosure of Mortgage: If the loan is secured by real estate (Real Estate Mortgage) or movable property (Chattel Mortgage), the lender may choose to foreclose on the collateral instead of, or in addition to, suing for the money.

3. The Requirement of "Demand"

For a case to prosper, the lender must generally prove that the debt is due and demandable.

Default (Mora): Under Article 1169 of the Civil Code, "those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation."
Notice of Termination: The lender must usually send a formal Letter of Demand notifying the borrower of the termination and demanding payment within a specific period. Without this demand, the borrower is not legally in "delay" unless the contract expressly stipulates that demand is not necessary.

4. Can You Be Imprisoned for Debt?

It is a fundamental principle under the 1987 Philippine Constitution (Art. III, Sec. 20) that "no person shall be imprisoned for debt."

However, there is a crucial distinction:

Civil Liability: You cannot be jailed for failing to pay a loan (Civil Case).
Criminal Liability: You can be jailed if the debt involves criminal acts, such as:
Bouncing Checks (B.P. 22): If you issued checks to cover the loan that were subsequently dishonored.
Estafa (Art. 315, RPC): If deceit or fraud was used to obtain the loan.

5. Prescription Period: How Long Can They Wait?

Lenders do not have forever to sue you. Under Article 1144 of the Civil Code, actions based upon a written contract must be brought within ten (10) years from the time the right of action accrues.

The "accrual" usually starts from the date of the last demand or the date the last installment became due. If the lender fails to file a case within this 10-year window, the debt becomes a "natural obligation," which cannot be enforced by court action but may still be voluntarily paid by the debtor.

6. Defenses for the Borrower

If a case is filed, borrowers often raise certain defenses, including:

Unconscionable Interest Rates: Philippine courts have the power to reduce "stipulated interest rates" if they are found to be iniquitous or contrary to morals (e.g., interest rates exceeding 3-4% per month are often struck down).
Partial Payments: Proving that the amount claimed does not reflect previous payments made.
Prescription: Arguing that the 10-year period to sue has already lapsed.

Summary Table

Aspect	Rule in the Philippines
Right to Sue	Permitted after demand and default.
Imprisonment	Not for the debt itself, but possible if via B.P. 22 (bouncing checks).
Prescription	10 years for written loan contracts.
Collateral	Lender can choose between collection or foreclosure.

Would you like me to draft a sample response letter to a formal demand from a lender or bank?