This article provides general legal information in the Philippine setting and is not a substitute for advice based on specific facts.

1) What a “Demand Letter” Really Is (and What It Is Not)

A demand letter is a written notice from a creditor (or the creditor’s lawyer/collection agent) telling a borrower/debtor that a loan is overdue and demanding payment within a stated period. It usually includes:

The amount claimed (principal, interest, penalties, charges)
The basis of the debt (promissory note, loan agreement, receipts, ledger, checks, acknowledgments)
A deadline to pay and where/how to pay
A warning that the creditor may pursue legal remedies (civil suit, foreclosure, small claims, etc.)

It is not yet a court case. A demand letter does not automatically create a judgment, a lien, or a warrant. It is a pre-litigation step—but it can have major legal effects (especially on default, interest, prescription, and evidence).

Demand letters can come from different sources

Creditor’s own letter (bank/financing company/private lender)
Law office letterhead (may be a genuine law firm, or sometimes merely styled that way)
Collection agency letter (third-party collector acting for the creditor)

The legal impact depends less on the stationery and more on the underlying obligation and the content, proof of sending/receipt, and timing.

2) The Legal Backbone: Loans, Default, and “Demand” Under Philippine Law

A. Loan is primarily a civil obligation

A standard unpaid loan is generally a civil matter under the Civil Code provisions on obligations and contracts and on loan/mutuum. The Constitution prohibits imprisonment for debt (non-payment of a simple loan is not, by itself, a crime). Criminal exposure usually arises only when special criminal laws or fraud-related offenses come into play (discussed below).

B. When does a borrower become “in default” (mora)?

Under the Civil Code, delay/default (mora) generally begins when:

The obligation is due and demandable, and
The debtor fails to perform, and
There is demand (judicial or extrajudicial), unless demand is not required under the law or the contract.

Key point: In many cases, a demand letter is how a creditor proves extrajudicial demand, which matters for:

Starting or proving delay
Claiming damages for delay (often in the form of interest)
Triggering certain contractual consequences (like acceleration clauses)
Interrupting prescription (more below)

C. Situations where demand may NOT be necessary

Civil law recognizes situations where a debtor can be in delay even without a demand, such as:

When the obligation or contract expressly states that demand is unnecessary (e.g., “without need of demand” clauses)
When the time of performance is a controlling motive and the parties clearly intended strict punctuality
When demand would be useless (e.g., performance has become impossible due to the debtor’s act)

Even where demand is not strictly required, creditors still send demand letters because they are useful evidence and often required by procedure or practice.

3) What Happens If You Ignore the Demand Letter?

Ignoring a demand letter rarely “ends” the problem. More often it strengthens the creditor’s position and reduces the debtor’s options.

A. The creditor is more likely to escalate (and faster)

A demand letter is often the “last attempt” before the creditor chooses a remedy such as:

Small Claims (if within the allowed amount and the claim qualifies)
Regular civil action for collection of sum of money and damages
Foreclosure (real estate mortgage) or foreclosure/sale (chattel mortgage)
Replevin (to recover possession of personal property, commonly vehicles, in certain setups)
Collection against guarantors/sureties (if there is suretyship)

Silence is commonly taken as refusal or inability to pay, which can push a creditor toward litigation or foreclosure.

B. Interest, penalties, and charges may continue to accrue

What can be collected depends on the contract and law:

Principal is generally collectible if the debt is proven and due.
Stipulated interest (contractual interest) is collectible only if expressly agreed upon in writing (Civil Code rule). If the contract lacks a proper written stipulation for interest, creditors may still seek legal interest as damages for delay once the debtor is in default, depending on circumstances and court rulings.
Penalties (penalty charges, liquidated damages) and collection fees are collectible if validly stipulated. Courts may reduce unconscionable penalties or iniquitous terms.
Attorney’s fees are not automatic. They may be recovered if:

There is a valid stipulation in the contract; and/or
The court finds a lawful basis (e.g., the debtor’s actions compelled litigation), subject to the court’s discretion and reasonableness.

Practical consequence of ignoring: the claimed balance may balloon, and the creditor’s documentation of repeated demands can support claims for costs and fees.

C. Acceleration clauses may be triggered

Many loan agreements include an acceleration clause, allowing the creditor to declare the entire loan due upon default on any installment. A demand letter may:

Invoke acceleration
Set the date when the creditor treats the loan as fully due

Ignoring the letter increases the chance the creditor treats the account as accelerated and sues for the full amount.

D. Prescription can be affected—usually in the creditor’s favor

Under the Civil Code, prescription of actions (the running of the time limit to sue) is interrupted by, among others, a written extrajudicial demand by the creditor.

That means a demand letter—if properly established—can reset or interrupt the prescriptive period, extending the time the creditor has to file a case.

Ignoring the letter does not prevent interruption. In many scenarios, the creditor benefits from being able to prove it made a written demand.

E. The demand letter becomes evidence

In court, a demand letter can help prove:

The debtor was notified of the obligation and default
The creditor made efforts to collect
The debtor’s failure to respond (sometimes argued as bad faith, depending on facts)
The basis for delay-related damages (interest from demand date, depending on the case)

A debtor’s lack of reply does not automatically mean admission, but it can be strategically damaging if the debtor later disputes amounts or terms without any earlier objection.

F. Credit reporting and reputational/financial consequences

For bank/financing-sector loans, delinquency may lead to:

Internal blacklisting
Negative credit records through credit information systems (where applicable)
Difficulty obtaining future credit, credit cards, housing loans, etc.

(Exact mechanisms depend on the institution and applicable regulations, but delinquency reporting is a real-world consequence even without court action.)

4) The Likely Next Steps by the Creditor (After Being Ignored)

A. Barangay conciliation may be required for many private-loan disputes

For many disputes between individuals residing in the same city/municipality, the Katarungang Pambarangay system generally requires barangay conciliation/mediation before filing in court, unless an exemption applies (e.g., one party is a juridical entity, parties reside in different cities/municipalities, urgent legal action, etc., depending on circumstances).

If the creditor initiates barangay proceedings and the debtor ignores notices:

The barangay may issue the appropriate certification after failure of settlement/appearance, enabling the creditor to file in court
The debtor loses an early opportunity to negotiate in a lower-stakes setting

B. Filing a civil case: Small Claims or regular collection

1) Small Claims Many unpaid-loan cases are filed as small claims because the procedure is streamlined (typically no lawyers for parties in the hearing, faster timelines, simplified pleadings). Courts require proper documentation: contracts, promissory notes, proof of release of funds, statements of account, demands, etc.

There is a monetary limit for small claims that has been amended over time; the applicable cap depends on the latest Supreme Court rules at the time of filing.

2) Regular civil action (Collection of Sum of Money) If not eligible for small claims (amount too high, nature of claim, need for complex evidence, etc.), the creditor may file a regular civil case. This is slower and more expensive but allows broader remedies, fuller trial, and potentially provisional remedies.

C. Provisional remedies: Attachment and related measures (in limited cases)

A creditor may seek pre-judgment remedies like preliminary attachment only under specific grounds (e.g., fraud, intent to abscond, disposing property to defraud creditors, etc.) and with court requirements (bond, affidavits). It is not automatic in simple non-payment cases, but it becomes a risk when there are allegations of deception or dissipation of assets.

D. Judgment and execution: the most serious civil consequence

If the creditor wins and the judgment becomes final, the court can issue a writ of execution, which may result in:

Garnishment of bank accounts and receivables
Levy on non-exempt real or personal property
Sheriff’s sale of levied assets to satisfy the judgment

In practice, execution is where ignoring earlier settlement opportunities becomes costly—because enforcement targets real assets and cash flows.

5) Secured Loans: When Collateral Is at Risk

If the loan is secured by a real estate mortgage or chattel mortgage (vehicle, equipment), ignoring a demand letter can quickly shift the creditor’s strategy from “collection” to “take the collateral.”

A. Real estate mortgage: foreclosure

Foreclosure may be:

Extrajudicial (common, faster, if the mortgage instrument allows it and legal requirements are met), or
Judicial (through court)

Consequences can include:

Auction sale of the property
Potential deficiency claim if sale proceeds are insufficient (depending on facts and the governing arrangement)
Loss of possession after the proper process and timelines

Redemption or equity-of-redemption rights depend on the type of foreclosure and applicable laws and conditions, and deadlines can be strict.

B. Chattel mortgage / vehicle financing

For vehicles and similar chattels:

Creditors may pursue remedies consistent with the chattel mortgage and related procedure
Some arrangements involve replevin to recover possession pending litigation
Borrowers should be aware that creditors generally cannot lawfully seize property through force or illegal entry; there are lawful processes to follow

Important civil-law principle: “Automatic appropriation” of collateral upon default is generally disallowed in forms that amount to pactum commissorium (a prohibited arrangement where the creditor automatically becomes owner upon default without proper foreclosure/sale).

6) “Will I Be Arrested?”—Civil Debt vs. Criminal Liability

A. General rule: non-payment of a simple loan is not a crime

The Philippine constitutional principle against imprisonment for debt means that mere failure to pay a loan typically leads to civil liability (paying money), not jail.

B. Common exceptions where criminal cases appear

Criminal exposure usually arises from how the debt was incurred or how payment was promised—especially involving fraud or checks.

1) Bouncing checks (Batas Pambansa Blg. 22)

If the debtor issued a check that is later dishonored (bounced), the payee may file a BP 22 case if the legal elements are met. A key part is that the issuer receives notice of dishonor and fails to make good the check within the period provided by law (commonly discussed as five banking days in many contexts tied to presumptions).

BP 22 is one of the most frequent criminal “attachments” to a loan dispute—particularly where lenders required postdated checks.

2) Estafa (Revised Penal Code)

Estafa allegations sometimes accompany unpaid loans when the creditor claims there was:

Deceit at the start (fraudulent inducement), or
Misappropriation of money received in trust/commission, or
Other fraudulent acts contemplated by Article 315

Not every unpaid loan is estafa. Courts look closely at whether the transaction is truly a simple loan (where ownership of money passes to the borrower with obligation to repay) versus a trust/agency arrangement or fraud-laden transaction.

3) Other possible offenses (fact-dependent)

Falsification of documents (fake IDs, fake payslips, forged signatures)
Identity theft/impersonation schemes
Threats/harassment on the creditor side can also generate criminal exposure for collectors (see below)

Bottom line: Ignoring a demand letter itself does not create criminal liability, but if checks or fraud are involved, the dispute may become criminalized.

7) Borrower’s Rights: Limits on Collection Tactics and Privacy

Even when a debt is valid, collection efforts must still respect law and rights.

A. Harassment and threats are not lawful collection tools

Creditors/collectors who use:

Threats of violence
Public shaming campaigns
Coercion
Repeated abusive communications may expose themselves to legal risks under various laws (potential criminal complaints such as grave threats, unjust vexation, coercion), and civil damages depending on circumstances.

B. Data Privacy Act considerations

Debt collection often involves personal data (contacts, employment info, addresses). Misuse—especially by some online lending operations—can raise issues under the Data Privacy Act and related enforcement actions. Disclosing a debtor’s situation to unrelated third parties, scraping contact lists, or broadcasting personal information can be legally risky for the collector, depending on facts and consent/legal bases.

C. Defamation and cyber-related liabilities

Posting accusations online, sending defamatory messages to employers/friends, or publishing “wanted” posts can implicate libel/cyberlibel concerns and civil claims.

8) Common Legal Defenses and Issues Debtors Raise (Whether or Not They Received a Demand)

Ignoring a demand letter can forfeit early opportunities to clarify disputes. In court, typical issues include:

A. “Do I really owe this amount?”

Debtors may contest:

Incorrect principal balance
Misapplied payments
Excessive penalties/fees
Unauthorized charges

A creditor must prove the debt with documents. Conversely, a debtor benefits from requesting a breakdown early and preserving proof of payments.

B. Interest and penalty enforceability

Key legal points often raised:

Interest must be in writing to be demandable as contractual interest.
Even if stipulated, courts may reduce unconscionable interest/penalties.
Penalty clauses may be tempered if inequitable.

C. Prescription (time-bar)

Actions to collect can prescribe depending on the nature of the written instrument and other factors. However:

A creditor’s written extrajudicial demand can interrupt prescription.
Debtor’s written acknowledgment or partial payment can also affect prescription.

D. Authenticity and authority

Debtors sometimes contest:

Forged signatures
Lack of authority of the signatory
Questionable assignment of the debt to another collector (who must show authority/assignment)

9) Practical Consequences of Silence: Why Ignoring Usually Makes Outcomes Worse

Even when a debtor has defenses, ignoring a demand letter tends to create these practical disadvantages:

Loss of negotiating leverage (creditors are more flexible before filing).
Escalating costs (fees, litigation expenses, interest exposure).
Faster legal escalation (small claims/collection/foreclosure).
Stronger paper trail for creditor (multiple unresponded demands).
Higher risk of default judgments or adverse outcomes if summons or notices are also ignored.

A demand letter is often a “decision point” where the debtor can:

Pay, settle, restructure, dispute amounts, or raise defenses—before the matter becomes a case with execution risk.

10) What Typically Happens in Court (So the Consequences Are Concrete)

A. If the creditor files a case and the debtor continues to ignore

Once a case is filed, the debtor will be served summons (or the equivalent in small claims). Failing to respond or appear can lead to:

Loss of chance to present defenses
Judgment based on the creditor’s evidence
Eventual execution against assets

B. After judgment: enforcement tools that matter in real life

When the creditor wins and enforces:

Bank garnishment can freeze and turn over funds
Levy on property can lead to auction sale
Garnishment of receivables can redirect payments owed to the debtor (e.g., rentals, commissions in some scenarios)

Civil execution is not theoretical—it is the mechanism that turns a paper judgment into actual collection.

11) Special Situations Worth Knowing

A. Co-makers, guarantors, and sureties

If the loan has:

A co-maker or solidary debtor, the creditor may pursue any of them for the whole obligation (depending on the contract wording and legal characterization).
A guarantor or surety, liability differs: suretyship often makes the surety directly and primarily liable; guaranty may be subsidiary, depending on terms and law.

Ignoring a demand letter may also expose co-obligors to immediate collection actions.

B. Employer involvement and salary loan contexts

Some loans involve payroll deduction agreements or employer coordination. Legal enforceability depends on the documentation and applicable labor and contractual rules. Collectors should not threaten employers unlawfully, but creditors may use lawful contractual payroll arrangements where valid.

C. Scams and “fake law office” demand letters

Not every demand letter is legitimate. Red flags include:

No clear loan reference or documents
Inflated amounts without breakdown
Threats of immediate arrest purely for non-payment
Demands to pay via personal accounts without traceable creditor identity

A legitimate creditor can usually provide a statement of account and proof of obligation.

12) Key Takeaways

A demand letter is not a court order, but it is a legally meaningful step that can prove default, support damages/interest, and interrupt prescription.
Ignoring it increases the likelihood of escalation to barangay conciliation, small claims, civil collection, or foreclosure, depending on the loan.
Non-payment of a simple loan is generally civil, not criminal—but bouncing checks (BP 22) and fraud-related circumstances can create criminal exposure.
Once a creditor obtains a judgment, the serious consequences come through execution: garnishment, levy, and sheriff’s sale of assets.
Creditors and collectors have legal limits; harassment, threats, and privacy violations can create liability on the collector’s side.