Introduction

The recovery of unpaid debts in the Philippines is governed primarily by the Civil Code, the Rules of Court, special laws, and jurisprudence from the Supreme Court. Creditors have a wide range of remedies — from purely extrajudicial methods to full-blown litigation, and even criminal prosecution in appropriate cases. The choice of remedy depends on the amount involved, the nature of the obligation (secured or unsecured, written or oral), the quality of evidence, the location of the parties, and the debtor’s solvency.

As of December 2025, the jurisdictional thresholds are as follows:

Small Claims Cases: ₱1,000,000 and below (A.M. No. 08-8-7-SC as amended in 2023, effective limit ₱1,000,000)
Ordinary civil actions in first-level courts (MeTC/MTC/MTCC/MCTC): up to ₱2,000,000 exclusive of interest, damages, attorney’s fees, litigation expenses, and costs (RA 11576, July 2021, which raised the RTC threshold to amounts exceeding ₱2,000,000)
Regional Trial Courts: amounts exceeding ₱2,000,000 (exclusive of the same items)

I. Extrajudicial (Amicable) Collection

Final Demand Letter
Always the first step. It formally constitutes default, starts the running of legal interest (if not yet running), and is required for claims of attorney’s fees in court (unless the contract provides otherwise). The letter should give a short but reasonable period (7–15 days is standard).
Debt Restructuring or Dacion en Pago
Parties may agree on installment payments, dacion en pago, or assignment of assets. Such agreements must be reduced to writing (preferably notarized if substantial).
Third-Party Collection Agencies
Licensed agencies may be engaged, but they have no judicial personality to sue. All collection activities must comply with the Data Privacy Act of 2012 (RA 10173) and must not constitute harassment, grave threats, or unjust vexation.

II. Mandatory Barangay Conciliation (Katarungang Pambarangay)

Under Sections 399–422 of the Local Government Code (RA 7160), all disputes between parties actually residing in the same barangay (or same municipality for adjacent barangays) must first undergo conciliation before the Lupong Tagapamayapa.

Exceptions (no barangay conciliation required):

One party is a juridical entity
One party is the government or any of its subdivisions
One party is a public officer/employee and the dispute relates to performance of duties
Cases involving parties from different municipalities/cities (unless same province and parties agree)
Real actions or those involving title to property
Where one party is a minor or incompetent

Failure to undergo or attach the Certificate to File Action results in dismissal for lack of cause of action/prematurity.

III. Judicial Remedies

A. Small Claims Action (₱1,000,000 and below)

Governed by A.M. No. 08-8-7-SC (Rule of Procedure for Small Claims Cases, as amended)
Filed in the MTC where plaintiff or defendant resides (plaintiff’s option)
No lawyers allowed (except for entities that have in-house counsel)
Plaintiff files verified Statement of Claim with affidavits and documentary evidence
Hearing is conducted informally; decision rendered within 30 days from last hearing
Decision is final, executory, and unappealable (only Rule 65 certiorari for grave abuse of discretion)
Most practical and fastest remedy for simple, documented debts

B. Ordinary Civil Action for Sum of Money (any amount)

Jurisdiction and Venue
- ≤ ₱2,000,000 → MeTC/MTC/MTCC/MCTC
- ₱2,000,000 → RTC
  Venue: residence of plaintiff or defendant, at plaintiff’s election (Rule 4, Sec. 2, Rules of Court), or place of execution/repayment if contractually stipulated and valid.
Procedure
- Cases filed in first-level courts for claims ≤ ₱2,000,000 are governed by the Revised Rule on Summary Procedure (A.M. No. 02-11-09-SC as amended):
  – Prohibited pleadings: motion to dismiss (except lack of jurisdiction or failure to comply with barangay conciliation), motion for bill of particulars, motion for extension (with exceptions)
  – Answer within 30 days
  – Preliminary conference within 30 days after answer
  – Decision within 30 days after receipt of last affidavit/position paper
- Cases in RTC or claims in first-level courts that fall outside summary procedure limits follow the regular procedure (pre-trial, trial, etc.).
Provisional Remedies Available
- Preliminary Attachment (Rule 57) – strongest weapon when debtor is about to abscond, remove, or conceal property
- Preliminary Injunction (Rule 58) – rarely granted in pure collection cases
- Receivership (Rule 59) – when debtor’s business is in danger of dissipation

C. Criminal Actions (when elements of deceit or bad checks are present)

Batas Pambansa Blg. 22 (Bouncing Checks Law)
- Jurisdiction: always MeTC/MTC where the check was issued or delivered
- Elements: (1) issuance of check for value, (2) knowledge of insufficiency, (3) subsequent dishonor, (4) notice of dishonor and failure to pay within 5 banking days
- Penalty: imprisonment up to 1 year or fine up to double the check amount (or both)
- Civil liability may be enforced in the same criminal case (preferred) or separately
- Prescription: 4 years from date of dishonor or expiration of 5-day period
Estafa under Art. 315(2)(d) RPC (fraudulent postdating or issuance of bad check) or Art. 315(1)(b) (misappropriation)
- Jurisdiction: RTC if imposable penalty exceeds 6 years (which it usually does when amount is large)
- Civil liability can be claimed in the criminal case

Note: Purely civil debts cannot be converted into criminal cases simply to pressure the debtor (Supreme Court has repeatedly warned against this abuse).

D. Foreclosure of Securities

Real Estate Mortgage
a. Extrajudicial Foreclosure (Act 3135 as amended)
– Fastest and most common
– Requires special power of attorney in the mortgage contract
– Publication and posting requirements
– Public auction by notary public or sheriff
– No deficiency recovery unless expressly stipulated (RA 6551)
b. Judicial Foreclosure (Rule 68, Rules of Court)
– Filed in RTC where property is located
– Allows deficiency judgment
– Longer process
Chattel Mortgage (Act 1508, Civil Code Arts. 2085–2125)
– Extrajudicial sale with notice
– Judicial foreclosure via ordinary collection action plus attachment
Pledge or Antichresis
– Public sale with notice (Arts. 2112, 2137 Civil Code)

IV. Prescription Periods (Civil Code)

Written contract (promissory note, loan agreement): 10 years (Art. 1144)
Oral contract: 6 years (Art. 1145)
Open account/current account: 4 years from last entry
Action to enforce a court judgment: 5 years for execution by motion, 10 years for revival by action (Rule 39, Sec. 6)
BP 22: 4 years
Extrajudicial foreclosure: 10 years from maturity (if no acceleration clause)

Prescription is interrupted by (1) written extrajudicial demand by creditor, (2) written acknowledgment by debtor, or (3) filing of court action.

V. Interest Rates

If stipulated in writing: rate agreed upon (Usury Law repealed by CB Circular 905 s. 1982)
If no stipulation: 6% per annum (BSP Circular 799 s. 2013, effective 1 July 2013)
On judgments: 6% per annum from finality until full satisfaction (Bangko Sentral Monetary Board Resolution, 2013; clarified in Nacar v. Gallery Frames, G.R. No. 189871, 2013)

VI. Attorney’s Fees and Costs

Recoverable when:

Expressly stipulated (enforceable up to the agreed rate)
Exemplary damages awarded
Debtor acted in bad faith
Standard judicial award: 10–20% of principal in straightforward collection cases

VII. Execution of Judgment

Motion for execution within 5 years from finality
After 5 years: action for revival of judgment (new 10-year period)
Remedies against fraudulent conveyance: accion pauliana (Art. 1381 Civil Code)
Examination of debtor’s assets (Rule 39, Sec. 36–38)
Garnishment, levy on real/personal property

Practical Recommendations (2025)

For debts ≤ ₱1M: always use Small Claims — fastest and cheapest.
For debts ₱1M–₱2M: file in MeTC/MTC under Summary Procedure.
Always attach the original promissory note/contract and computation of interest.
File preliminary attachment early if debtor is disposing of assets.
If check involved, file BP 22 immediately — the threat alone often results in settlement.
Consider extrajudicial foreclosure for mortgaged properties — it is far quicker than litigation.

The Philippine legal system provides robust protection for creditors, but success ultimately depends on documentation, prompt action before prescription, and strategic choice of remedy.