Insolvency and Criminal Cases

One concern of creditors in filing a case for collection is the possibility of getting nothing in the end because the debtor has no properties to satisfy the judgment award, while spending more money for legal fees. A pyrrhic victory, so to speak. In fact, I often come across debtors dropping the hint of filing, or actually filing, a case for insolvency or bankruptcy just to bring home the (alleged) point that they have nothing more to cough out.
It’s true that once a petition for insolvency is granted, the debtor-insolvent is discharged from his existing debts. The decision to file for insolvency, however, should not be taken lightly. Here are a few reasons why:

1. The alleged insolvent debtor may be subject to criminal prosecution. There are a number of criminal cases that an alleged insolvent debtor may face. For instance, the debtor may be charged with fraudulent insolvency, a criminal offense, if it is shown that he transferred his property to another place beyond the reach of the creditors. Article 314 of the Revised Penal Code (RPC) reads:

Fraudulent insolvency.- Any person who shall abscond with his property to the prejudice of his creditors, shall suffer the penalty of prision mayor, if he be a merchant and the penalty of prision correccional in its maximum period to prision mayor in its medium period, if he be not a merchant.

Technically, “Fraudulent insolvency” does not mean that the offender is insolvent. A debtor who has transferred his property to another place beyond the reach of the creditors has been found to be guilty of Fraudulent Insolvency.

2. A petition for insolvency does not extinguish a criminal case. Let’s say you’re facing a criminal case, perhaps BP 22 (Bouncing Checks) or estafa. Will the petition for insolvency adversely affect the pending criminal case?

Insolvency, with respect to individuals, is governed by Act No. 1956 (1909), as amended. This law, which is known as the “Insolvency Law”, provides that all actions against the petitioner-insolvent is suspended. There is nothing in the Insolvency Law which provides for the extinction of any criminal action against the petitioner.

3. Insolvency will adversely affect your credit standing. It’s true that there are people who were able to bounce back after being declared insolvent. Still, if you’re a businessman, a declaration of insolvency would be catastrophic to your credit standing.

By the way, a juridical person (example, a corporation) may also file a petition for insolvency, although there are other available options, such as suspension of payments and corporate rehabilitation. To read an extended discussion on criminal cases and insolvency, click here. Also posted here.

15 comments

  1. If only collection agencies won’t act like they own the bank… or if they bill the debtors base on the debtors cash flow.. I think there won’t be cases anymore..

  2. Luisa, let me take the role of a devil’s advocate. There’s also an argument that when the debtor applied for the loan or incurred the obligation, the debtor already considered his/her cash flow. He/she should have considered if his/her cashflow is such that he/she will be able to pay when the debt (or the installments) falls due. Just a thought =)

  3. Atty, need your advise please. I made an arrangement with a bank for restructuring of my creditcard balance. They allowed me to pay a fixed amount for 18 months. When finally I was able to finish paying last May 2007, I asked for certification of full payment. Somebody from the bank called me and informed me that they made a mistake in the restructure amount and I still lack around 13000. I argued that I was not the one who dictated the amount and they were the ones who established my monthly payment. What should I do now? Do I give in to their demand that I still pay the lacking amount? All these demands are through phone. Its been very hard for me paying monthly for the past 18 months and I was already celebrating my clearance from that debt. Thank you sir, please enlighten me.

  4. Jeanne, first off, I gues you’ve noticed from all the posts here that legal advice is not dispensed here – only legal information. In general, however, you could check if the restructured amount reflects the principal that you’re supposed to pay (I guess you received a computation on the restructured debt). The agreement on the restructure a mount may or may not be binding depending on the circumstances – something which I could not possibly inquire any further. Perhaps you could write their legal department to clarify the matter. Good luck!

  5. I had an outstanding ballance from a major credit card company here in the Philippines. I havent paid my bills for 5 months and they I got a mail from a collection agency and telling me to pay the balance if full plus the legal fees 10 days after upon the receipt of their demand letter. Upon getting the demand letter, I called the agency right away to make arrangment if i can pay through installment, the incharge told me i need to pay hafl of the amount in 10 days and he other half in 2 payments. I told the lady that I will just pay directly to the credit card company and i will contact them to make payment re-structure. the lady told me that I could no longer do that since my cc company turned over my account to them, nor my cc company will ever send me billing statement. I then decided to just wait for their netx letter and will settle evrything in court so I could request for an easy payment scheme. I havent heared anything from the collection agency then, until I got a billing stateement form my cc company with an outstanding balance nearly 150% to its original amount.

    do you have any idea what had happened to my account?

  6. hi atty. good. please give me an advised. i loan at puregold finance last nov 2006 then last april i was resigned at my work due to some problem in my work. then they sue me for b.p. 22 because i was still not able to pay my balance. now they want me to settle it but still i dont have money to pay the balance because i still have no work.
    im willing to pay my balance but they want to file a case on me

  7. Atty,

    Please help. We can no longer pay our store rent. We are heavily in debt and would want to stop paying rent. Can we close shop and leave the inventory as rent payment for the last couple of months? We don’t even have money to pull out the items. We would want to be fair as well but the longer we stay, the more debt we incur. By next month, we will not have money for our own place and for my sister’s tuition fee.

    How would you suggest I proceed?
    Thank you

  8. Hi Atty, I have a loan abroad (Italy) and I was not able to pay it dahil nilayasan ko yong utang ko sa abroad at yong bank asking me to pay it thru a collection agency here in philippines and my question is, is it legal that a collection agency in the Phil. can collect or file a case against me?

  9. hi atty. fred,
    just want to ask what is the meaning of article 1839 of the civil code of the philippines. it is about partnership dissolution and winding up.
    thank you. ^^

  10. atty

    Badly needed your legal advise, my parents have unpaid loans with 2 banks,now those two banks are hunting down my parents stating they already filed criminal case against them, its actually not that they don’t want to pay its just that inevitable circumstances occur thus temporarily lost track of the debt. I’m just so worried I don’t want my parents imprisoned the only property we owned is a house and lot which i believe would cost like almost half a million, and I also don’t have any idea how much they owe, what can we do?please help atty
    thank you so much

  11. atty,
    need your advise regarding sa case ng cousin ko bp22 last 2007,she lost her jod in hongkong the lending company forced me to pay the debts because i am the co maker,18 cheks worth 135t ,this time we pay already 108 t,when the court set for the hearing we cant attend bec no fare to go to manila so i decided to call the agency to pay the cheks para mabigyan ng desistance,tama ba ginawa ko?hindi cla magbigay ng soa this time hanging po kami magkano ang bal ng utang.time well come my cousin deported from hongkong expired documents,nagpunta cya sa nbi na hit cya dahil sa case nag ask ng court clearance ano ang gagawin namin sana matulungan mo po kami ano ba hakbang na gagawin?salamat po more power.

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