In the Philippines, recovering unpaid debts is a structured process governed primarily by the Rules of Court and the Revised Rules on Summary Procedure. Whether you are an individual creditor or a business entity, understanding the legal hierarchy of debt collection is essential to ensuring a successful recovery while avoiding liabilities like harassment or coercion.

1. The Preliminary Step: Demand

Before filing any case in court, the law generally requires the creditor to extrajudicially demand payment. Under Article 1169 of the Civil Code, "those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation."

Demand Letter: A formal letter sent via registered mail (to ensure proof of receipt) demanding payment within a specific period (e.g., 5 to 10 days).
Purpose: This establishes "legal delay." Without a demand, the debtor may argue that the obligation is not yet due or that they were not given the opportunity to pay.

2. Mandatory Mediation: The Barangay Level

If both the creditor and debtor reside in the same city or municipality, the case must generally pass through the Katarungang Pambarangay (Barangay Justice System) before reaching the courts.

Certificate to File Action: If mediation at the Barangay level fails, the Lupong Tagapamayapa will issue a certificate allowing the creditor to elevate the matter to the judiciary.
Exceptions: This step is skipped if the parties reside in different cities/municipalities, if one party is a corporation, or if the case requires urgent provisional remedies.

3. Determining the Proper Court

The legal route depends entirely on the principal amount (excluding interests and penalties) being claimed.

A. Small Claims Cases

If the amount claimed does not exceed P1,000,000.00 (as per the most recent 2022 amendments), the case falls under the Revised Rules on Small Claims Properties.

Nature: It is an informal, inexpensive, and expeditious procedure.
Prohibition of Lawyers: Parties are not allowed to use lawyers during the hearing. They must represent themselves.
Finality: The decision in small claims is final, executory, and unappealable.

B. Summary Procedure

If the claim exceeds P1,000,000.00 but does not exceed P2,000,000.00, it is governed by the Rules on Summary Procedure.

Evidence: The case is decided based on position papers and affidavits; trial is generally not required unless the court deems it necessary.

C. Ordinary Civil Action (Collection of Sum of Money)

If the claim exceeds P2,000,000.00, it follows the standard Rules of Civil Procedure.

Jurisdiction: These are filed in the Regional Trial Court (RTC).
Process: This involves a full-blown trial, including pre-trial, presentation of evidence (witnesses and documents), and cross-examination.

4. Provisional Remedies: Attachment

In certain instances, a creditor can ask the court to "attach" or freeze the debtor’s properties at the start of the lawsuit to ensure there is something to collect later. Under Rule 57, this is possible if:

The debtor is about to depart the Philippines with intent to defraud.
The debt was incurred through fraud.
The debtor has hidden or disposed of property to avoid the claim.

5. Criminal Liability: BP 22 vs. Estafa

Debt, by itself, is civil in nature. The Philippine Constitution prohibits imprisonment for non-payment of debt. However, the manner of non-payment can lead to criminal charges:

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

If the debtor issued a check that was dishonored for "Insufficient Funds" or "Account Closed," they may be criminally liable.

Key Requirement: The creditor must send a written Notice of Dishonor. If the debtor fails to pay within five (5) days of receiving that notice, a prima facie case for BP 22 is established.

Estafa (Art. 315, Revised Penal Code)

If the debtor used deceit or false pretenses to obtain the money (e.g., issuing a check knowing there were no funds at the time of the transaction to induce the creditor to part with money), they may be charged with Estafa.

6. Execution of Judgment

Winning the case is not the end. If the court rules in favor of the creditor, a Writ of Execution must be moved for.

Levy on Property: The Sheriff will demand payment. If the debtor cannot pay in cash, the Sheriff can levy (seize) personal or real properties of the debtor to be sold at public auction.
Garnishment: The Sheriff can "freeze" the debtor's bank accounts to satisfy the judgment.

Summary Table: Jurisdiction and Rules

Amount of Claim (Principal)	Applicable Rule	Representation
Up to P1,000,000	Small Claims	Self-represented (No Lawyers)
Above P1,000,000 to P2,000,000	Summary Procedure	Lawyers allowed
Above P2,000,000	Ordinary Civil Action	Lawyers allowed