PART 1 - LOAN AND SECURITY

In this blog i wish to discuss the most common and recommended security for people in the lending business or those who want to engage in it. Naturally, as a creditor, you would want to feel secured that you can go after the debtor if he fails to pay you on the agreed period.

1. ISSUANCE OF POSTDATED CHECKS (PDC's)

This is the most common of all forms of security in extending a loan. Basically, the debtor has to issue postdated checks corresponding to the monthly installment plus the interest. But if the agreement is to pay the loan in full at a fixed period, then the whole amount plus interest will be the face value of the check. In the latter instance, there are some who make use of the rediscounting method wherein they exchange the value of the check with cash already deducting the agreed interest. When paying, the debtor can either deposit in the checking account the payment and ask the creditor to just encash the check or he can pay in cash and take back the postdated check(s) he issued. If he fails to pay, the creditor will deposit or encash the check on its due date.

Thereafter, a criminal complaint for Violation of Batas Pambansa Bilang 22 (Bouncing Checks Law) is filed. B.P. 22 prohibits the issuance of worthless checks. Although issuing a bounced check is a crime, this is frequently abused by creditors. Every now and then, a complaint in our office is filed for this kind of offense only for the purpose of collecting the loan. In short, we become collecting agencies. In my opinion however, this is the most tiring, frustrating form of security or collateral in the lending business. Why so? because even if a case is filed in court against the debtor, you have to wait till a judgment of conviction becomes final before you can colllect. That is, if the debtor has properties which can be executed. There is also no assurance that you can secure a judgment of conviction. For some lucky ones however, the threat of a criminal case forces the debtor to settle the loan. But for those who have nothing to lose, they couldn't care less.

Procedure: Send a demand letter (better if through a lawyer) personally or thru registered mail or private couriers. It is very important that the debtor receives the demand letter. I would recommend hiring a lawyer for this. If there is no payment received within the allotted time period, then a criminal complaint is filed before the prosecutor's office or the Municipal Trial Court/Municipal Circuit Trial Court.