Debt and Collection: What Lenders and Borrowers Can Legally Do

No, not for the debt alone. Article III, Section 20 of the 1987 Constitution says: "No person shall be imprisoned for debt or non-payment of a poll tax." A lender who threatens "makukulong ka" over a plain unpaid loan is not stating the law. See Can you go to jail for unpaid debt?

The debt does not disappear, though. The lender can win a court judgment for the amount owed, with interest, and have it enforced against your property.

Two situations come up most often:

• A bounced check (BP 22). Issuing a check you know is not funded is a crime if the bank dishonors it. If the check was presented within 90 days of its date and you do not pay the amount within five banking days after receiving notice of the dishonor, the law treats that as evidence that you knew (Section 2). Section 1 of BP 22 provides imprisonment of thirty days to one year, or a fine of up to double the amount of the check but never more than ₱200,000, or both.
• [Estafa](/law/glossary/estafa). Using deceit or abuse of confidence to get someone's money, causing him or her a loss, is estafa under Article 315 of the Revised Penal Code. The penalty rises with the amount: see the estafa penalties table.

Simply failing to pay a loan you got honestly is neither. The two crimes are compared in BP 22 vs estafa, and the elements of estafa are in Estafa in the Philippines.

First, interest must be in writing. Article 1956 says:

Second, when no valid rate was agreed, the legal interest rate is 6% a year since July 1, 2013, as the Supreme Court applied in Nacar v. Gallery Frames. See What is the legal interest rate?

The Supreme Court does not apply one fixed ceiling: it judges high rates case by case and can strike down an unconscionable rate. In Lara's Gifts & Decors v. Midtown Industrial Sales, the Court said that when the agreed interest is more than twice the prevailing legal rate, the creditor must show the rate is needed under current market conditions and that the parties were on an equal footing. If a rate on a loan is struck down, only the rate falls: the borrower still owes the loan, with the legal rate of interest instead. Read Is 5% monthly interest legal?

A loan can be valid even if it is not notarized. Under Article 1356, contracts bind the parties "in whatever form" they were made, if the essential requisites are present. A spoken loan is collectible too, but without a written agreement the lender cannot charge agreed interest (Article 1956), and some other agreements need a signed writing to be enforced in court (Article 1403, the Statute of Frauds). See Is a promissory note valid without a notary? and Is a verbal agreement binding?

See also the topic page on contracts and obligations.

The lender must sue within ten years on a written contract (Article 1144) and within six years on an oral one (Article 1145). The count usually starts when the debt falls due and is not paid. Article 1155 lists what stops the clock:

So a demand letter from the lender, or a signed "I still owe you" from the borrower, matters. See How many years can you collect a debt? and the table of prescriptive periods for civil cases.

Often, yes. If the lender and the borrower are individuals who actually live in the same city or municipality, the Local Government Code requires them to try settlement before the barangay Lupon before going to court (Section 412). While the dispute is in the barangay, the period to sue is interrupted, but for no more than 60 days (Section 410(c)). See Do I need to go to the barangay first?

Republic Act No. 11765 says financial service providers "are prohibited from employing abusive collection or debt recovery practices against their financial consumers." The lender also answers for its collectors. Posting about a borrower or messaging the people in his or her phone contacts can also be a data privacy violation. The borrower first writes to the company; if it does not act within 15 calendar days, he or she may complain to the National Privacy Commission. Details in Online lending app harassment.

These are made-up examples to show how the rules work. They are not advice for any real case.

Dennis lends his cousin Joy ₱50,000. Joy signs a note promising to pay in one year, but the note says nothing about interest. When Joy does not pay, Dennis cannot charge interest for the loan period, because none was agreed in writing. After he sends a written demand, legal interest of 6% a year can run for the delay. He has ten years from the due date to sue, and the demand letter also interrupts that period.

Carla pays a supplier with a post-dated check and her account is empty when it is deposited. If the supplier sends her a notice of dishonor and she does not pay within five banking days, she may face a BP 22 case, because the law then treats her failure to pay as evidence that she knew the account was not funded. The unpaid debt itself still has to be paid.

Ask a lawyer before you sign a loan with high interest or with a post-dated check, when you receive a demand letter or a subpoena from a prosecutor, and when a collector threatens you. A lawyer can check whether a rate is unconscionable, whether the period to sue has run, and whether a criminal complaint has any basis. If you cannot afford one, see Free legal help in the Philippines.