In the Philippines, the acquisition of motorcycles is predominantly facilitated through financing agreements secured by a Chattel Mortgage. When a borrower (mortgagor) fails to meet their payment obligations to the lender (mortgagee), a specific set of legal procedures and consequences under Philippine law—primarily the Chattel Mortgage Law (Act No. 1508) and the Civil Code—are triggered.

1. The Nature of the Chattel Mortgage

A chattel mortgage is a conditional sale of personal property (the motorcycle) as security for the payment of a debt. Unlike a real estate mortgage, the object is movable. Under the Personal Property Security Act (PPSA) or Republic Act No. 11057, the framework for securing obligations with personal property has been further streamlined, but the core principle remains: the property serves as collateral.

2. Default and the Right to Repossess

"Default" occurs when the debtor fails to pay an installment on its due date. Most promissory notes include an Acceleration Clause, which stipulates that failure to pay one or more installments renders the entire remaining balance due and demandable.

Extrajudicial Repossession

In the Philippines, lenders often first attempt "voluntary surrender." If the borrower refuses, the lender may seek to repossess the unit.

Consent: Repossession must be peaceable. Lenders cannot use force, intimidation, or enter a private dwelling without a court order.
Judicial Action (Replevin): If the borrower refuses to surrender the motorcycle, the lender files a Petition for Replevin. The court then issues a writ ordering the sheriff to take possession of the motorcycle.

3. Foreclosure Proceedings

Once the motorcycle is repossessed, the lender does not automatically own it; they must undergo foreclosure to satisfy the debt.

Extrajudicial Foreclosure

Under Act No. 1508, the mortgagee can sell the motorcycle at a public auction to recover the unpaid balance.

Notice Requirement: The lender must provide the mortgagor at least 10 days' notice of the time, place, and terms of the sale.
Public Auction: The proceeds from the auction are applied to the costs of the sale and the principal debt.

Judicial Foreclosure

The lender files a case in court to ask for the sale of the motorcycle. This is less common for motorcycles due to the time and cost involved compared to the value of the unit.

4. The Recto Law (Article 1484 of the Civil Code)

The Recto Law is the most critical protection for consumers in installment sales of personal property. It provides the lender with three alternative (not cumulative) remedies:

Exact Fulfillment: Demand the specific performance of the payment (sue for the money).
Cancel the Sale: Rescind the contract if the buyer defaults on two or more installments.
Foreclose the Mortgage: Foreclose if the buyer defaults on two or more installments.

Crucial Limitation: If the lender chooses to foreclose the mortgage, they are legally barred from recovering any "deficiency" (the remaining balance) from the buyer. The recovery is limited solely to the proceeds of the foreclosure sale, regardless of whether the sale price covers the total debt.

5. Deficiency Judgments

If the Recto Law does not apply (e.g., if the loan was a straight bank loan secured by a mortgage rather than an installment sale from the seller), the lender may sue for a Deficiency Judgment. This happens if the auction price of the motorcycle is lower than the outstanding debt. The borrower remains liable for the difference.

6. Civil vs. Criminal Liability

A common misconception is that defaulting on a motorcycle loan results in immediate imprisonment.

Civil Liability: Defaulting is generally a civil matter. You cannot be jailed for the mere act of being unable to pay a debt (Section 20, Article III of the 1987 Constitution).
Criminal Liability (Estafa/BP 22): Criminal charges may only arise if:
The borrower used fraudulent means to obtain the loan.
The borrower issued "bouncing checks" (BP 22) for the installments.
The borrower hides, sells, or disposes of the mortgaged motorcycle without the lender's consent, which may constitute Malversation or Estafa under the Revised Penal Code.

7. Impact on Credit Standing

Beyond the loss of the vehicle, the legal consequence of default includes the reporting of the account to the Credit Information Corporation (CIC). This results in a "negative hit" on the borrower’s credit report, making it significantly difficult to secure future loans, credit cards, or even employment in certain sectors (like banking) for several years.