Legal Remedies Against a Borrower Who Refuses to Pay (Philippines)

For educational purposes only; not legal advice. Philippine law is statute- and procedure-heavy—work with counsel to tailor the steps to your facts.

1) Core legal bases you’ll work with

Civil Code (obligations & contracts; damages; prescription)
Rules of Court (Small Claims; ordinary civil actions; provisional & execution remedies)
Revised Penal Code (estafa) and B.P. Blg. 22 (bouncing checks)
Special laws (Electronic Commerce Act; Real Estate & Chattel Mortgage; barangay conciliation/Katarungang Pambarangay)
Bangko Sentral circulars & jurisprudence on legal interest (generally 6% p.a.) and when it runs (e.g., Nacar v. Gallery Frames framework)

2) First moves before suing

A) Verify the claim

Identify the obligation: loan, sale on credit, services, open account, etc.
Collect the proof: promissory note, loan/credit agreement, invoices/SOA, delivery receipts, acknowledgment messages, deposit slips, checks, e-mails/chats (keep metadata), and any collateral papers (REM/CM/pledge).
Check prescription (time limits):
- Written contract/judgment/mortgage: 10 years
- Oral contract/open account: 6 years
- Quasi-delict: 4 years
- Criminal (estafa, BP 22): separate and shorter/longer rules apply—act promptly.

Tip: A written demand letter (extrajudicial demand) interrupts prescription and helps prove default (mora solvendi). Send by registered mail/courier and keep proof of receipt.

B) Demand letter content (practical)

Total amount due (principal + agreed interest/penalties or legal interest if none stipulated)
Payment deadline (a clear date)
Bank details/payment mode
Warning of civil/criminal steps, attorney’s fees, and costs
Offer of settlement (if any) and a channel for response

3) Civil remedies (to get paid)

A) Negotiated outcomes worth trying

Restructuring (new schedule, reduced interest, grace period)
Dacion en pago (payment by giving a thing)
Confession/acknowledgment of debt (ideally notarized)
Security upgrade: real estate/chattel mortgage, pledge, or surety/guarantor added

B) Small Claims vs. Ordinary Civil Action

Small Claims Case (SCC) (A.M. No. 08-8-7-SC, as amended):
- Designed for sum of money claims using court forms, no lawyers appear for parties, speedy hearing, decision is immediately executory and typically not appealable.
- Monetary cap has been raised over time; check the current limit with the Clerk of Court.
- Great for straightforward unpaid loans, checks, or invoices.
Ordinary Civil Action for Sum of Money
- File in the proper trial court based on amount (first-level courts up to their expanded jurisdiction; RTC above that).
- Allows provisional remedies (see below), full discovery, and appeal.

Venue: where the defendant resides or where the obligation was to be performed (if stipulated).

C) Provisional remedies (to protect recovery while the case is pending)

Preliminary Attachment (Rule 57): freezes non-exempt assets to secure your claim when debtor is a non-resident, is disposing/absconding, fraudulently contracted the debt, etc. Requires bond and specific grounds.
Replevin (Rule 60): for specific movable property—often used with chattel mortgages to repossess collateral.
Preliminary Injunction/TRO: to stop acts that frustrate collection (e.g., asset stripping).
Garnishment after judgment (see §5 below).

D) Special contract tools

Penalty clauses & liquidated damages (Art. 1226): enforce if stipulated and not unconscionable.
Attorney’s fees (Art. 2208): recoverable if stipulated or if debtor’s act/omission forced litigation or is in bad faith.
Compensation (set-off): if you owe each other due, liquidated, demandable sums, they may legally offset.

E) Interest & when it runs

If you stipulated interest, courts enforce reasonable rates; unconscionable penalty/interest may be reduced.
If no stipulation, legal interest (generally 6% p.a.) applies:
- Loans/forbearance: from default/demand;
- Damages award: 6% from judicial demand or judgment until full payment.

Document interest clearly. Courts distinguish monetary interest (for use of money) from compensatory interest (damages for delay).

4) Collateral-based enforcement

A) Real Estate Mortgage (REM) – Act No. 3135

Extrajudicial foreclosure if the REM has a special power of sale.
Publish/post notices, conduct public auction, sheriff/notary handles sale.
Right of redemption exists for a limited period.
If sale proceeds don’t cover the debt, you may sue for deficiency.

B) Chattel Mortgage (CM) – Act No. 1508

Default allows replevin or extrajudicial sale of the chattel.
Observe notice requirements; pursue deficiency if allowed by contract/law.

C) Pledge

No deficiency after sale unless expressly permitted by law/contract; strict compliance with notice/sale rules required.

Always register mortgages/pledges to bind third persons. Unregistered security is weak against subsequent buyers/creditors in good faith.

5) Winning is half the battle: Executing your judgment

Writ of Execution (Rule 39): sheriff levies on non-exempt real/personal property.
Garnishment: serve writ/notice on banks/employers/debtors of your debtor; they must hold funds/property. (Foreign currency deposits enjoy special protection; ask counsel.)
Examination of Judgment Debtor: compel disclosure of assets; non-compliance risks contempt.
Third-party claims (terceria): if others assert ownership, be ready to post indemnity bond or contest.
Receivership or contempt tools for recalcitrant debtors.

6) Criminal angles that may apply

Civil and criminal cases are independent; filing one does not bar the other. Criminal liability hinges on proof beyond reasonable doubt.

A) B.P. Blg. 22 (Bouncing Checks Law)

Elements:
1. Made/issued a check to apply on account or for value;
2. Check was dishonored for insufficient funds/account closed;
3. Knowledge of insufficiency is presumed if the drawer fails to fund within five banking days after notice of dishonor.
Key practice points:
- Keep the original check, bank return slip, and proof of written notice (and its receipt).
- Courts often lean toward fines over jail for BP 22, but penalties are court-imposed.

B) Estafa (Art. 315, RPC)

By deceit using a check (Art. 315[2][d]/[2][a], depending on charging theory): typically requires that the check was issued to induce the creditor at the time of the transaction (not merely for a pre-existing debt) and that there was deceit plus damage.
By misappropriation/abuse of confidence (Art. 315[1][b]): where money/property was entrusted and converted to personal use.
Note: Estafa is not a substitute for mere non-payment; you need deceit or abuse of confidence elements.

Coordinate with the City/Provincial Prosecutor. Criminal cases may pressure settlement but should be filed only when facts fit the elements.

7) Barangay conciliation (Katarungang Pambarangay)

Mandatory pre-condition for many money disputes between natural persons residing in the same city/municipality, unless an exception applies (e.g., parties live in different cities/municipalities, one party is a juridical person, there’s urgent relief needed, etc.).
Outcome: Amicable settlement (has the effect of a final judgment if not repudiated) or a Certification to File Action (needed before court).

8) Evidence & e-evidence

Public vs. private documents: notarized docs are public and enjoy presumptions; private docs require proof of due execution/authenticity.
Electronic evidence: under the E-Commerce Act and Rules on Electronic Evidence, e-mails, texts, chat logs, e-signatures, and electronic business records are admissible if properly authenticated.
Checks & bank proofs: keep return memos (e.g., DAIF/Account Closed), deposit slips, statements.
Interest/accounting: maintain SOAs and running ledgers; courts like clear computations.

9) Strategic pathways (pick what fits)

Clean, documented loan ≤ small-claims cap
- Barangay (if required) → Small Claims → Execution.
Larger, contested debt; debtor hiding assets
- Ordinary civil with preliminary attachment → judgment → levy/garnish.
REM/CM exists
- Extrajudicial foreclosure (REM/CM) in parallel with/without a sum-of-money case for deficiency.
Bounced check used to obtain the credit
- BP 22 and/or estafa (if deceit present) + civil action.
Entrustment gone wrong (agency/partnership)
- Estafa by misappropriation + civil recovery.
Debtor willing to settle
- Restructure with notarized acknowledgment, new security, and waivers; consider consent to jurisdiction and service address clauses.

10) Common pitfalls to avoid

Skipping barangay conciliation when required → case dismissal.
Unclear interest/penalty computations → courts reduce or deny them.
Relying on threats alone without building admissible evidence.
Letting prescription run (don’t wait; demand interrupts, filing tolls).
Forum shopping (filing multiple overlapping cases on the same cause).
Assuming collateral is self-help: repossess lawfully (replevin/foreclosure) to avoid criminal/civil exposure.

11) Practical checklists

A) Litigation packet

IDs; contract/note; SOAs/ledger; demand letter + proof of receipt; acknowledgments; checks/return slips; witness list; computation sheet (principal, interest, penalties, less payments).

B) If collateralized

Original mortgage/pledge; registry proof; tax dec/TD (for real property); OR/CR (for vehicles); photos/valuation; default notices served.

C) If using BP 22/estafa

Original check; bank dishonor memo; written notice of dishonor with proof of receipt; narrative of how the check induced the credit (for estafa).

12) FAQs in one-liners

Can I add attorney’s fees? Yes, if stipulated or under Art. 2208 grounds; amount must be reasonable.
Can I charge any interest I want? It must be expressly agreed and not unconscionable; courts can reduce penalties.
Can I seize salary or bank funds immediately? Only after judgment (or with valid attachment). Then use garnishment.
Do I need a lawyer? Small claims: lawyers can’t appear for parties. Ordinary actions: counsel is strongly advisable.
Civil vs. criminal—what first? Depends on leverage and facts; they can proceed independently.

13) Smart default plan (if you’re starting today)

Send a strong, documented demand (7–10 calendar days), compute principal + interest, and warn of civil/criminal steps.
Assess barangay conciliation applicability and comply if required.
Choose Small Claims (if within cap) or Ordinary Civil with attachment (if risk of flight/fraud/asset stripping).
If a check bounced, evaluate BP 22/estafa elements and file where appropriate.
If there’s collateral, pursue extrajudicial foreclosure/replevin in parallel (where allowed).
On judgment, execute promptly: levy/garnish, judgment-debtor exam, repeat until satisfied.

Bottom line

You have layered tools: (1) paper the default (demand & evidence), (2) file the right case (small claims or ordinary), (3) freeze assets early (attachment/replevin), (4) hit criminal avenues only when elements fit, and (5) enforce relentlessly (levy, garnish, debtor exam). The earlier you document, demand, and file, the better your odds of real recovery—not just a paper judgment.