Collecting debts in the Philippines should be done legally to avoid counterclaims. Here are the lawyer-approved steps to collect a debt from someone.
1. Extrajudicial Demand
Before initiating a lawsuit, the creditor should formally demand payment from the debtor. Sending a written extrajudicial demand letter is crucial because it legally interrupts the prescriptive period for filing a collection suit.
Tip: Hiring a lawyer is best so you can avoid (a) not being treated seriously; (b) making an incomplete demand that does not put the debtor in delay; (c) failing to halt the prescriptive period, causing your time limit to expire.
Once the extrajudicial demand remains unheeded, gather the annexes properly to prepare the case.
2. Determining the Proper Court and Procedure
The proper court to file the collection suit depends on the total amount of the debt, exclusive of interest, damages, attorney’s fees, litigation expenses, and costs.
- If the claim for money owed does not exceed ₱1,000,000.00, it is governed by the Rules of Procedure for Small Claims Cases in first-level courts (MTC, MeTC, MTCC, MCTC).
- If the claim exceeds ₱1,000,000.00 but does not exceed ₱2,000,000.00, the action is governed by the Rules on Summary Procedure in first-level courts.
- Regular Procedure (RTC): If the demand exceeds ₱2,000,000.00, the collection suit falls within the exclusive original jurisdiction of the Regional Trial Court (RTC) and follows regular civil procedure.
3. Filing the Complaint and Paying Docket Fees
- To commence the action, the creditor must file a Complaint (for regular or summary procedure) or an accomplished and verified Statement of Claim (for small claims).
- Since the claim is based on a written instrument (like a loan agreement or promissory note), it is an “actionable document.” The substance of the document must be set forth in the pleading, and the original or a certified true copy must be attached.
- The creditor must pay the prescribed docket and filing fees. Payment in full is mandatory and jurisdictional; the court does not acquire jurisdiction over the case unless these fees are paid.
4. Issuance and Service of Summons
A collection of a sum of money is an action in personam, which means the court must acquire jurisdiction over the person of the defendant to render a valid judgment. Upon filing the complaint and paying the fees, the clerk of court will issue a summons. The sheriff or authorized server will serve the summons to the debtor, notifying them of the lawsuit and their required period to file an Answer or Response.
5. Hearings and Settlement
Once the defendant files an Answer or Verified Response, the court will set the case for hearings or preliminary conferences.
- In Small Claims, the process is simple and informal: lawyers are strictly not allowed to appear at the hearing to represent parties, and the judge will first exert efforts to bring the parties to an amicable settlement.
- In regular and summary procedures, the case may be referred to Court-Annexed Mediation (CAM) or Judicial Dispute Resolution (JDR) to facilitate a compromise.
6. Execution of the Money Judgment
If the court rules in favor of the creditor (judgment obligee) and the decision becomes final and executory, the creditor must file a Motion for Execution. Under the rules, the executing sheriff shall enforce the money judgment in the following strict order:
- First: Immediate Payment on Demand. The sheriff must demand the immediate payment of the full judgment amount in cash, certified bank check, or any other acceptable mode of payment from the debtor.
- Second: Satisfaction by Levy. If the debtor cannot pay in cash, the sheriff shall levy upon the debtor’s real or personal properties that are not exempt from execution. The debtor has the option to choose which property to levy upon; if they fail to choose, the sheriff will levy on personal properties first, and then real properties.
- Third: Garnishment. The sheriff may also garnish debts, bank deposits, financial interests, and other credits belonging to the debtor that are in the possession or control of third parties (like banks) to satisfy the judgment.
