Responding to a Final Demand Letter and Requesting Installment Payment (Philippines)

This guide explains, step-by-step, how to handle a final demand letter in the Philippines—what it means legally, how to check the numbers, how to negotiate installments, and how to protect yourself while you settle. It’s written for consumers, freelancers, and SMEs facing bank, lender, supplier, landlord, or credit-card demands.

1) What a “Final Demand” means (and why you shouldn’t ignore it)

A demand generally places a debtor in default (mora) when the obligation doesn’t fall due on a date certain. Once in default, interest, penalties, damages, and attorney’s fees (if stipulated or allowed) may accrue.
A written extrajudicial demand can interrupt prescription (the clock for filing a case), as can your written acknowledgment or part payment. If you reply, do so strategically (see §6) so you don’t concede more than necessary.
For secured debts (mortgage, chattel mortgage), default may trigger foreclosure; for unsecured debts, the creditor must sue and obtain judgment before garnishing wages/bank accounts.

Rule #1: Never ignore a final demand. Respond within the letter’s deadline (often 5–10 days), even if only to ask documents and propose a standstill while you reconcile.

2) First checks: validate the claim before you negotiate

Ask the sender (politely, in writing) for:

Authority & identity
- If a law firm/collection agency wrote you, request proof of engagement/assignment and where to pay (so you don’t pay the wrong party).
Basis of the obligation
- Contract/loan agreement, statements of account, invoices, promissory notes, delivery receipts, lease, or card T&Cs.
Computation (as of a date):
- Principal outstanding
- Contractual interest: stated rate and compounding method
- Penalties (late charges): formula and dates
- Attorney’s/collection fees: % or amount, and the clause allowing it
- Taxes/other charges (if any)
Security (if any)
- Mortgage/chattel mortgage details, or guarantees.

Why this matters: You should only promise what you actually owe. Courts can reduce unconscionable interest/penalties. Even though the usury law’s ceilings are not currently enforced, rates and charges must still be reasonable and contract-based.

3) Interest, penalties, and fees—quick legal anchors

Conventional interest (contractual) requires express stipulation; otherwise legal interest applies.
Legal interest on monetary obligations is 6% per annum simple interest (generally from default or when the amount is liquidated; and from finality of judgment on court awards until paid).
Penalties (late charges/liquidated damages) must be expressly stipulated and may be reduced if iniquitous or disproportionate.
Attorney’s/collection fees require a contractual basis; even then, courts may cut down excessive amounts.

Tip: When proposing a plan, ask to waive or reduce penalties and fees, and to stop compounding (simple interest only) during the payment schedule.

4) If the creditor is a bank, lender, or fintech

You are also a financial consumer; abusive collection (harassment, public shaming, threats of criminal cases where none lie) is not allowed.
BP 22 (bouncing checks) is criminal; do not issue post-dated checks unless you’re sure funds will be available.
If the debt is secured, discuss whether foreclosure steps are being started; you can still restructure to avert foreclosure.

5) Strategy before you speak numbers

Decide your goal: lowest total cost vs. longest time vs. saving collateral/credit standing.
Know your floor: list cash on hand, monthly net income, and realistic surplus you can dedicate.
Offer something today: a good-faith down payment (even small) often buys fee waivers and a standstill.
Shorter beats longer: creditors prefer shorter plans with automatic deposits over long, fragile ones.
One contact point: keep negotiations in writing (email/letter). Save copies.

6) How to respond (structure of your reply)

Your reply should (a) acknowledge receipt, (b) request documents if needed, (c) dispute any errors, (d) propose a standstill, and (e) offer a concrete installment with timelines.

Important: If you’re still validating numbers, say you reserve all rights and that any payment is without prejudice pending reconciliation. Do not sign a blanket “admission of full liability” until figures are final.

7) Designing a workable installment plan

Down payment: 5–30% upfront (even payable within 7–14 days).
Term: 3–12 months is common for consumer debts; 12–24 months for larger SME obligations.
Interest during plan: request 0% interest (or reduced rate) going forward, with penalty waiver if you pay on time.
Due dates: align with your salary or receivables dates.
Security: avoid new collateral if possible; if required, limit to existing security and prohibit new confessions of judgment.
Default & cure: add a 7–10 day cure period before the plan collapses.
Receipts: require official receipts and a running statement of balance after each payment.
Release: upon full payment, creditor issues Release and Quitclaim/Certificate of Full Settlement and updates credit reporting.

8) Settlement paperwork (what good documents look like)

A) Debt Settlement / Restructuring Agreement (private, notarized)

Key clauses to seek:

Parties and authority (who’s signing for the creditor)
Acknowledged balance (or “for reconciliation” with an attached schedule)
Payment schedule (dates, amounts, bank details)
Reduced/waived charges (penalties/fees written off conditional on timely completion)
Interest going forward (ideally 0%; at most simple interest)
Standstill (no suit/foreclosure while you’re current)
Default & cure (written notice + cure period; plan revives if cured)
No new criminal exposure (no PDC requirement, or if any, clear dates and return of checks upon full payment)
Confidentiality and no harassment commitments
Release and cancellation of security upon full payment
Venue/notice provisions

B) Court-approved compromise (optional)

If a case is filed, parties may submit a compromise agreement for approval. Once approved, it has the force of judgment, and either side can execute if breached. Use this only if you’re comfortable with strict enforcement.

9) Special situations

Secured debt (mortgage/chattel mortgage): Ask for a restructure to halt foreclosure. If sale proceeds won’t cover everything, negotiate a deficiency waiver upon agreed payments.
Corporate/SME debt with personal guarantees: Try to cap the guarantor’s liability at the restructured amount and release the guarantee upon X% payment.
Multiple creditors: Consider a global plan; don’t let one creditor take all your payment capacity and cause you to default on others.
Prescription nearing: Remember that written demand or your written acknowledgment interrupts prescription. If you need leverage, avoid broad admissions until terms are settled.

10) Template letters (adapt as needed)

A) Short acknowledge + validate + standstill letter

Subject: Response to Final Demand Dated [Date]

I acknowledge receipt of your Final Demand regarding Account No. [####].

To reconcile the amount, kindly provide within 5 days: (1) authority to collect, (2) contract/statement of account, and (3) detailed computation (principal, interest, penalties, fees) as of [date].

While we reconcile, I request a 14-day standstill on legal action and collection measures. I am willing to make a good-faith payment of ₱[amount] to be applied to principal without prejudice pending reconciliation.

I remain open to installment settlement and will send a proposal once documents are received.

Thank you. [Name / Contact]

B) Installment proposal with waiver request

Subject: Proposal for Installment Settlement – Account [####]

Based on your computation as of [date], I propose the following settlement: (1) Down payment: ₱[amount] on or before [date]; (2) Installments: ₱[amount] every [15th/30th] starting [date] for [X] months; (3) Charges: Waiver of penalties and collection fees, and 0% interest on the installment period, provided all payments are made on time; (4) Standstill: No filing of suit/foreclosure while I am current; (5) Receipts & balance: Official receipt each payment and updated balance after each credit; (6) Release: Upon full payment, issue Release and Full Settlement and cancel any annotations/security.

Please confirm in writing so I can proceed with the down payment.

[Name / Contact]

11) What collectors cannot do (and your recourse)

Harassment, threats, public shaming, or contacting your employer to coerce payment are not lawful collection methods.
Wage garnishment, bank freezes, property levy require a court judgment (or valid foreclosure for secured loans).
If harassed, document everything (screenshots, recordings where lawful) and complain to the appropriate regulator (e.g., if a bank/lender), or seek legal assistance.

12) Practical do’s and don’ts

Respond on time, in writing.
Pay something you can afford now (preferably to principal).
Keep all emails, texts, receipts.
Be realistic with your numbers; under-promising and over-delivering keeps the deal alive.

Don’t

Sign blank forms or issue post-dated checks if funds are uncertain (BP 22 risk).
Admit everything if the numbers are in dispute—say “subject to reconciliation”.
Agree to unlimited attorney’s fees or confessions of judgment.
Miss installment dates without communicating—ask for a one-time grace before you default.

13) If talks fail—what next?

Mediation: Many institutions/law firms will agree to mediation to avoid litigation cost.
Litigation risk: If sued, you can still settle; courts generally encourage compromises.
Bankruptcy/insolvency tools (for businesses): Consider court-supervised rehabilitation or liquidation if debts are unpayable; for individuals, evaluate realistic settlement vs. judgment exposure.

14) Bottom line

A final demand is a door to negotiate—not the end.
Validate the debt, protect your rights, and submit a clear, affordable installment plan with fee/penalty waivers and a standstill.
Put everything in writing, pay on time, and secure a Release at the finish line.

Not legal advice

Every case turns on the contract, statements, and communications. For large or secured debts, or if litigation is threatened, consult a Philippine lawyer to review documents and finalize a settlement that protects you.