Unpaid personal loans—whether from banks, financing/lending companies, employers, cooperatives, or private individuals—are enforced under the Civil Code, Special Laws (RCC, DPA, BP 22, etc.), and the Rules of Court. This guide explains what lenders can lawfully do, what borrowers can expect, and how cases are actually pursued—from demand letters to judgment and execution.

1) Nature of the Obligation

Sources: Written loan agreements, promissory notes, credit lines, salary loans, online/app loans, or informal “IOUs.”
Form: Notarization is not required for validity of a simple loan of money, but a notarized document becomes a public instrument with prima facie evidentiary weight.
Default (mora): Occurs on due date (if fixed) without need of demand; otherwise, a demand is needed to put the debtor in delay.
Accruals: Contractual interest, penalty charges, and liquidated damages/attorney’s fees apply if stipulated—but courts may reduce rates/penalties that are unconscionable. The Usury Law ceilings have long been suspended, yet jurisprudence routinely cuts down excessive rates (e.g., multiple percent per month).

2) Pre-Litigation: Lawful Collection & Borrower Protections

A. What lenders may do

Send written demand (email, courier, SMS/IM with proof of origin).
Restructure, extend, or compromise the debt (novation, dación en pago, installment plans).
Set-off/compensation against deposits with the same bank if there is a valid set-off stipulation and no legal bar.
Report to credit bureaus subject to data-privacy rules and proper notice.

B. What lenders may not do

Harassment (threats, profanity, public shaming, contacting phonebook contacts, posting photos);
Disclosing debt details to third parties without lawful basis;
Impersonating public officials; or using intimidation to coerce payment. Regulators (SEC for lending/financing companies, BSP for banks) and the Data Privacy Act prohibit abusive collection and contact-list scraping.

C. Demand letters (best practice)

State the amount due, legal basis, computation of interest/penalties to date, and a pay-by date.
Include notice of possible civil suit, provisional remedies (attachment), and, where applicable, criminal remedies (e.g., BP 22 for a dishonored check).

3) Choosing the Proper Case

A. Small Claims (fast-track)

Coverage: Money claims up to ₱1,000,000 (principal + interest + penalties as of filing are excluded from the cap; check current rules when computing).
Where: First-level courts (MeTC/MTC/MCTC) in the defendant’s or plaintiff’s city/municipality (venue rules apply; exclusive venue clauses in the contract are respected if clearly exclusive).
Speed: Verified Statement of Claim with attachments; no lawyers may appear for natural persons; one-day hearing; judgment is final and unappealable (subject only to extraordinary remedies in rare cases).
Use when the documentary trail is clear (promissory note, SOAs, ledgers, receipts, demand).

B. Ordinary Civil Action for Sum of Money

Jurisdiction:
- First-level courts: claims not exceeding ₱2,000,000.
- Regional Trial Courts (RTC): claims exceeding ₱2,000,000 or when joined with other causes of action beyond first-level jurisdiction.
Flow: Complaint → Answer → (Motions) → Mediation/JDR → Trial → Judgment.
Provisional remedies available (below).

C. Special situations

Secured loans (pledge/chattel mortgage/real estate mortgage): creditor may foreclose or replevy secured movables.
Dishonored checks: civil action plus potential BP 22 prosecution (separate and distinct from civil liability).
Alleged fraud at inception: possible estafa case only if deceit existed at the time of obtaining the loan (non-payment alone is not estafa).

4) Provisional Remedies (to secure assets early)

Preliminary Attachment: For specific grounds (e.g., debtor about to abscond, fraudulently disposing assets, non-resident). Requires a bond; sheriff may attach property or garnish bank accounts/receivables pending trial.
Replevin: To recover specific personal property wrongfully detained (common in chattel-mortgage defaults on vehicles/equipment).
Injunction: To restrain acts that would frustrate judgment (rare in pure loan cases).

5) Evidence & Computations

Core proof: Loan contract/promissory note, schedules, SOAs, official receipts, bank statements, ledger certified by custodian, and demand with proof of receipt.
Electronic Evidence: Emails, app logs, SMS, and screenshots are admissible if authenticated (Rules on Electronic Evidence).
Interest & penalties: Provide a clear table (principal, rate, start date, compounding if any, penalty, attorney’s fees). Courts disfavor opaque or compound-on-penalty computations.
Attorney’s fees/collection fee: Enforceable if stipulated and reasonable (commonly 10%; courts may reduce).

6) Prescription (Time Limits)

Written contracts / promissory notes: 10 years from default.
Oral loans (no written proof): 6 years.
Judgments: 10 years to enforce.
Interruption: Filing suit, a written extrajudicial demand, or the debtor’s written acknowledgment interrupts and restarts the clock.

7) Defenses Typically Raised by Borrowers

Payment or partial payment (with receipts/proof).
Illegal or unconscionable interest/penalty (seek judicial reduction).
Lack of privity/forgery/lack of authority (e.g., signature denied; burden shifts).
Vices of consent (duress, mistake, incapacity).
Defective demand/accelerations (if contract requires notice before acceleration).
Prescription/laches.
Wrong venue/lack of jurisdiction or non-compliance with conditions precedent (e.g., mediation clauses).

8) Judgment & Post-Judgment Execution

Judgment: Court awards principal + legal/contractual interest (as judicially adjusted) + penalties/attorney’s fees (if warranted) + costs.
Execution: Upon finality (small claims—after entry of judgment), creditor may move for a writ of execution to:
- Garnish bank accounts/receivables;
- Levy personal or real property for auction;
- Examine the debtor (gastos hearing) to discover assets.
Exempt property: Certain items are exempt from execution (e.g., some personal effects, tools of trade, portions of a family home subject to legal limits/exceptions, and SSS/GSIS benefits).
Compromise: Parties may still settle; courts can approve judicial compromise (immediately final and executory).

9) Interest, Penalties, and “Unconscionability”

The Usury Law ceilings are not in force, but courts strike down rates that shock the conscience (e.g., multiple percent per month) and may:
- Reduce interest to a reasonable rate;
- Strike penalty interest or set it at a lower figure;
- Disallow interest on penalties (no “penalty on penalty”).
Compound interest requires an express stipulation; otherwise, only simple interest is applied.

10) Criminal Angles (When Do They Apply?)

BP 22 (Bouncing Checks Law): Issuing a check that is dishonored for insufficiency/closure and failing to make good within the statutory period can lead to criminal liability—separate from the civil claim.
Estafa (Art. 315): Requires fraud/deceit at the time of borrowing (e.g., false pretense, fictitious identity). Non-payment alone is not estafa.
Unfair collection practices by lenders may trigger administrative sanctions (SEC/BSP) and civil/criminal liability under the Data Privacy Act and other laws.

11) Special Contexts

Online/App-based loans: Digital consent forms are binding if clear and accepted; however, contact-list scraping and shaming are unlawful. Borrowers can lodge complaints with SEC/NPC for abusive practices; lenders should preserve consent logs and implement privacy-by-design.
Employer/Company loans: Deduction from wages must respect Labor Code rules (no unauthorized deductions; observe net-of-minimum wage constraints).
Cooperative loans: Governed also by the Cooperative Code and internal policies; still enforceable in civil courts or via cooperative dispute mechanisms.

12) Practical Playbooks

For Lenders

Paper the loan: Signed note/contract; clear APR; default/acceleration; venue clause; attorney’s fees.
Compute cleanly: Keep a running ledger; freeze figures as of cut-off with a transparent table.
Send demand: Trackable service; give a pay window; offer settlement options.
Pick the forum: Small claims (≤ ₱1M) for speed; ordinary action if above or complex; consider attachment where grounds exist.
Mind compliance: For lending/financing/banks—follow SEC/BSP rules on fair collection and privacy.

For Borrowers

Audit the debt: Ask for a computation breakdown; verify rate legality and posted payments.
Negotiate early: Restructure or compromise before suit; request waiver/reduction of penalties.
Preserve evidence: Contracts, receipts, chats/emails, call logs.
Assert rights: Object to harassment/shaming; invoke privacy rights; if sued, answer on time—default judgments are swift, especially in small claims.
Check prescription and defenses; propose a payment plan tied to real cash flow.

13) Costs, Timelines, and Outcomes

Docket fees scale with the amount claimed (payable at filing). Small claims have lower, fixed fees.
Timelines: Small claims can conclude in weeks to a few months; ordinary cases take longer (often many months or more, depending on congestion and motions).
Outcomes: Most cases settle after demand or at mediation/JDR once parties see realistic net recoveries after interest cuts and fees.

14) Key Takeaways

Civil, not criminal: Unpaid loans are principally civil matters; BP 22/estafa apply only in specific scenarios.
Fast track exists: Use small claims for clear money claims up to ₱1,000,000.
Courts trim excess: Expect judicial reduction of usurious-in-fact rates and penalties.
Secure early: Creditors should consider attachment; borrowers should engage early to avoid it.
Privacy matters: Harassment and data abuse in collections are punishable; stick to lawful methods.
Execution is the endgame: A paper judgment must be enforced—garnish, levy, and negotiate with eyes on exemptions and asset reality.

This article provides general information and is not a substitute for legal advice tailored to your facts. For substantial amounts, complex securities, or cross-border elements, consult counsel to calibrate strategy, rates, remedies, and risk.