Niko Villamor

The declaration of bankruptcy spawns a feeding frenzy, a time to negotiate the terms of surrender. The white flag has been raised. If you are in the midst of financial quagmire and unpaid bills start to pile up, there will be a long line of creditors outside your doorstep knocking furiously to secure payment from you. You will receive harassing telephone calls and dirty demand letters telling you to pay up.. .or else! Yes, the law prefers some creditors to others. The law acts as a traffic police officer manning the intersection to prevent vehicles from crashing against each other. Rumblings that this law is unfair have been voiced out over the years. Why should some creditors get paid ahead of others? The reason behind this law is to provide an orderly scheme or sequence for creditors to collect their debts. Based on their status, some creditors would have to be preferred to provide a systematic approach to the problem of who gets paid first. Creditors cannot rush to the door and expect to get paid all at the same time. This situation is conducive to pandemonium. Creditors should initiate legal steps to put liens on your identified properties to make sure that their stake will be respected once your properties are liquidated and sold to pay for your debts. A lien is a charge affecting the property subject to the lien. The law established what is known as “preference of credits” to guide the courts and other persons involved as to who or what gets paid first to avoid a mad scramble. Creditors, claimants and lien holders will line up to be paid out of your estate in accordance with their “preference” under the New Civil Code.

Wills are important if the person who made the will (the testator) owns real estate with unpaid mortgages. For example, if you own a house and lot worth P5 million with P2 million left on the mortgage, savings accounts, stocks, bonds and a life insurance policy and you left the house and lot with an unpaid mortgage to your daughter with the balance of your estate going to your spouse, does this mean that your child will get the house with or without the mortgage? Your daughter will get the house and lot with the obligation to pay for the mortgage unless you specified in your will that the mortgage will be paid by your estate. Without this clear instruction for the executor to pay the mortgage from the proceeds of your estate, your child would have to pay for the balance of the mortgage. If your daughter fails to pay the mortgage, the bank (the mortgagee) will file a lawsuit to foreclose the property, rendering your child without any asset protection device to preserve the real estate interest you passed on to her.

Execution is a post judgment remedy. A writ of execution is a court order directing the sheriff to seize the debtor’s property and authorizing a judicial sale of that property. The proceeds are used to pay the creditor the amount of the final judgment. Any surplus must be paid to the debtor. Certain real and personal properties are exempt from attachment or execution. For example, the law provides for a homestead or family home exemption that allows the debtor to retain his residence up to a specific peso value. When you fail to pay, the creditor may go to court and file a case against you. If he wins and you are unable or unwilling to pay, the judgment creditor can enforce the judgment through a judicial process known as “execution.” A court official will notify you that a judgment is outstanding against you and that if it is not settled, the official will seize and sell your property to pay the judgment.