Demand Letter and Small Claims in the Philippines: How to Collect Unpaid Debt

This is practical legal information for the Philippine setting. It’s not a substitute for advice from your own lawyer (especially if your facts are unusual, the amount is big, or the debtor is hiding assets).

The 5-minute overview

Document the debt. Contracts, promissory notes, invoices, receipts, bank transfers, and message threads are your core evidence.
Send a proper demand letter. It starts the clock, interrupts prescription (stops the statute of limitations from running), shows good faith, and is usually required for small claims.
Barangay conciliation (if applicable). If both parties are individuals who live in the same city/municipality, you generally must try barangay settlement before going to court.
File a Small Claims Case if your pure money claim is within the current small-claims monetary cap (set and adjusted by the Supreme Court). Small claims are fast, paper-based, no lawyers allowed to appear as counsel, and judgments are final.
Enforce the judgment if the debtor still doesn’t pay: garnishment of bank accounts/wages, levy on property, or post-judgment debtor’s examination.

Legal foundation (why these steps work)

Civil Code obligations: Non-payment is a breach; the debtor owes the principal plus damages/interest if due.
No usury ceiling (the Usury Law ceilings were effectively suspended), but courts reduce unconscionable interest and penalties.
Legal interest when none is stipulated (or from finality of judgment) is 6% per annum (Supreme Court’s Nacar doctrine).
Prescription (statute of limitations):
- Written contract / promissory note: 10 years from default.
- Oral contract / implied obligations: typically 6 years.
- Judgment: generally executable by motion within 5 years; afterwards (up to 10 years from entry) by independent action to revive.
- Extrajudicial demand (a proper demand letter) interrupts prescription.

Tip: If your claim is very close to expiring, file the case first, then keep negotiating.

Step 1 — Build your proof file

Create a single folder with:

Contract / promissory note / purchase order
Invoices & delivery receipts, OR & SOA
Bank proof (deposit slips, online transfer confirmations)
Chats, emails, text messages acknowledging the debt
Computation sheet (principal, interest, penalties—show your math)
Government ID(s) of the debtor if you have them
Draft demand letter and proof of service (see below)

Courts love organized, paginated evidence. Number your annexes (Annex “A”, “B”, …) and label every page.

Step 2 — The Demand Letter (and why you should always send one)

Purposes

Puts the debtor in default; sets a clear due date to pay.
Interrupts prescription.
Required attachment in small claims (to show prior effort to settle).
Encourages voluntary payment or a structured settlement.

Essential contents

Parties’ full names, addresses, and contact details
Exact amount due, with a clean computation (principal, agreed interest/penalties, less any payments)
Legal basis (contract, invoice, promissory note, unjust enrichment, etc.)
Drop-dead date to pay (e.g., 7–15 calendar days from receipt)
Where/how to pay (bank details, GCash, etc.)
A professional warning of next steps (barangay conciliation/court) if unpaid
Signature, printed name, position; attach copies of key documents

Service & proof

Send by registered mail with return card, courier with delivery receipt, or personal service with a short Affidavit of Service by the server.
Keep the registry receipt, tracking printout, photos of the envelope, and the signed receiving copy.

Template you can adapt

[Date]

[Debtor Name]
[Address]

RE: Demand to Pay – [Contract/Invoice/Promissory Note No.]

Dear [Mr./Ms. Lastname]:

As of today, your outstanding obligation to me/us is ₱[amount], broken down as follows:
- Principal: ₱[ ]
- Agreed interest/penalties (attach basis & computation): ₱[ ]
- Less payments: ₱[ ]
= TOTAL DUE: ₱[ ]

This arises from [brief basis: e.g., Promissory Note dated __ / Invoice Nos. __ delivered on __].

Please settle the TOTAL DUE on or before [date – give 7–15 calendar days] by [payment method].
If unpaid, I/we will pursue legal remedies, which may include barangay conciliation and a small claims case, plus allowable costs.

This letter serves as a formal extrajudicial demand.

Sincerely,
[Signature over printed name]
[Contact details]
Attachments: [List]

Interest math (when none is stipulated)

Legal interest: 6% simple interest per year.
From finality of judgment until fully paid: 6% per year on the total award.

Step 3 — Barangay conciliation (Katarungang Pambarangay)

Is it required? Usually yes when both parties are natural persons who reside in the same city/municipality. If so, you must first go to the Lupon of the debtor’s barangay (generally the barangay of the defendant/respondent).

Common exemptions (conciliation not required):

If any party is a corporation, partnership, or other juridical person
Parties live in different cities/municipalities (with some limited exceptions)
There is an urgent need for court relief (e.g., about to abscond)
The dispute is not conciliable (e.g., certain public-interest matters)

What to get If no settlement is reached, request a Certificate to File Action / Non-Settlement. Courts will look for this if conciliation was required.

Step 4 — Small Claims in the Philippines

What small claims is for A purely money claim (sum of money, debt or damages from a contract or obligations) up to the Supreme Court’s current cap (exclusive of interest, damages, and costs). The cap has been revised upward several times in the past decade; verify the current amount right before you file (the authority is A.M. No. 08-8-7-SC, Revised Rules of Procedure for Small Claims Cases, as amended).

If your claim is over the cap, you may (a) file a regular civil case, or (b) waive the excess to fit in small claims (you cannot sue for the waived balance later).

Key advantages

Speedy: one-day hearing is common; decisions often issued the same day.
Simple forms: “Statement of Claim” with annexes; “Response” from the defendant.
No lawyers may appear as counsel (they can help you draft; they just cannot appear unless they are the party).
Final judgments: no appeal (extraordinary remedies only in rare, exceptional cases).

Where to file (venue)

Personal actions are filed where you reside or where the defendant resides (choose one).
If you did barangay conciliation, the court will expect the matching Certificate to File Action.

What to file

Statement of Claim (verified) on the judiciary form
Attachments: your documents (Annexes), Demand Letter + proof of service, Barangay Certificate (if applicable), computation sheet, IDs, and any witness affidavits (often yours)
Filing fees: depend on the claim amount; indigent litigants may apply to litigate as pauper (fees waived)

After filing

Court issues Summons with a set hearing date; service is usually by sheriff/process server (now with e-service options under the revised rules).
Defendant’s Response is due by the date stated in the summons (you’ll receive a copy).

The hearing

Informal and judge-led. Rules of evidence are relaxed; bring originals of your documents and two sets of photocopies.
The judge will explore settlement first; if none, you present your story and documents briefly.
Non-appearance can result in dismissal (if you’re the plaintiff) or judgment by default (if the defendant).

The decision

Usually same day or within a few days.
Final and executory according to the Small Claims Rules.

Step 5 — If you win: how to actually collect

Demand voluntary compliance immediately with the signed judgment attached.
If unpaid, file a Motion for Execution (no long memo needed).
Sheriff can implement through:
- Garnishment: bank accounts, receivables, wages (subject to exemptions)
- Levy: seizure and sale of non-exempt personal/real property
- Examination of Judgment Debtor: require the debtor to appear in court and disclose assets and income
- Alias writs if the first writ is returned unsatisfied
Timelines: a judgment is generally executable by motion within 5 years; after that (up to 10 years), you may need to revive the judgment via a separate action.

Practical tip: Bring specific leads for the sheriff (bank branches used, employer, plate numbers, business locations). The more precise you are, the more effective the writ.

Special scenarios & strategic choices

Bounced checks (B.P. 22) / Estafa: If the debt involves bad checks or fraud, criminal options exist. These require specific elements (e.g., written notice of dishonor for B.P. 22). Many creditors still prefer small claims for speed and certainty, using the criminal route only when appropriate.
Corporate or partnership debtors: Small claims allows suits against juridical persons. They, in turn, must appear through an authorized non-lawyer representative (board resolution or SPA).
Multiple debtors: If solidary, you may collect the whole amount from any one of them. If joint, each owes only his share—make this clear in your pleadings and judgment draft.
Debtor dies: Claims are filed in the settlement of estate; suing the estate is different from suing the person. Act quickly.
Insolvency / rehabilitation: A court stay order can temporarily halt collection. Monitor corporate filings if you suspect this.
Debtor outside the Philippines: Service of summons becomes technical (substituted or extraterritorial service). Small claims may still work, but weigh costs and enforceability.

Compliance & ethics when collecting

No shaming or harassment. Publicly posting debts, contacting the debtor’s employer without lawful basis, or threatening baseless criminal cases can expose you to civil/criminal liability and Data Privacy Act issues.
Keep communications professional and factual; avoid defamatory language.
Protect personal data you collect; use and store only what is necessary for the case.

Frequently asked questions

Q: Do I really need a demand letter? Strictly speaking, a debt can be due without one if a due date passed. But a demand letter is highly advisable: it can be required in small claims, interrupts prescription, and often gets you paid.

Q: Can I claim attorney’s fees in small claims even though lawyers can’t appear? Yes—if you plead and prove them (by contract or as damages). Courts may reduce or deny if unsupported or unconscionable.

Q: Can I add interest and penalties on top of the cap? The jurisdictional cap looks at the principal claim (exclusive of interest, damages, and costs). Interest and allowable damages can still be awarded on top.

Q: What if my claim slightly exceeds the cap? You can waive the excess to fit small claims (and you cannot sue later for the waived amount), or file a regular civil action.

Q: How fast is “fast”? Small claims are designed for one-day hearings and swift decisions. Actual timing depends on court load and the quality of your papers and service of summons.

Checklists & tools

A. Pre-filing checklist

Contract / PN / invoices compiled and paginated
Computation sheet with clear, simple math
Demand letter sent; proof of receipt kept
Barangay Certificate to File Action (if required)
IDs and addresses verified (Google Maps printouts help sheriffs)
Decide: small claims vs regular case (waive excess or not)
Prepare originals + 2 photocopy sets of all annexes

B. Small claims filing packet

Statement of Claim (judiciary form), verified & signed
Annexes “A–__” (tabbed), including demand letter proof and barangay certificate
Filing fee or pauper motion with affidavits
Extra set for service on defendant

C. Hearing day kit

Originals of all documents
Two pens, calculator, and your computation sheet
Short opening outline (2–3 minutes) of facts and relief prayed for
Proposed computation for the judge’s ready reference

Smart drafting tips that win cases

Tell a clean money story: “We agreed on ₱__, he received __ on , due on , paid ₱, balance ₱.”
Make interest understandable: Use simple interest unless the contract clearly allows compounding; show daily or monthly accrual plainly.
Anticipate defenses: Payment, novation, lack of consideration, forged signature—add a sentence or exhibit to pre-empt each.
Ask for the right relief: Principal, stipulated or legal interest, penalties (if valid), costs, and execution upon finality.

Final caution on the small-claims monetary cap

The peso ceiling changes from time to time by Supreme Court administrative orders (Revised Rules of Procedure for Small Claims Cases, A.M. No. 08-8-7-SC, as amended). It has been raised several times in recent years. Before you file, confirm the current cap with your court’s Office of the Clerk of Court or the latest judiciary circulars. If your claim is near the cap, consider waiving the excess to lock in small-claims speed.

If you’d like, tell me your facts and numbers (principal, dates, any agreed interest/penalties). I can draft a tailored demand letter, a computation sheet, and a filing checklist you can bring straight to court.