What You Need to Know About Creditors’ Rights
You’re running a business that extends credit and some customers or clients fall behind in their payments. You try the usual phone call and email tactics but to no avail. How far can you go in collecting a debt owed to you? What are your rights — and limitations? What are the consumers’ rights?
Collecting debts can often prove difficult, especially if the people owing the money have fallen on hard times. They may even resort to bankruptcy, and then what do you do?
For the answer to these and other debt collection questions and concerns in or around the Dallas, Texas area, or in Addison and Plano, contact me at Uloth, P.C.
I have more than 30 years of experience in helping businesses resolve disputes and other issues facing them. I will be happy to confer with you, listen to your story, and help you pursue the best available course of action.
An Overview of Consumer Rights Legislation
Both the federal government and the state of Texas have laws on the books protecting consumers against abusive and/or illegal debt collection tactics.
The Fair Debt Collection Practices Act (FDCPA) of 1978 was designed to eliminate abusive, deceptive, and unfair debt collection practices. It applies only to the collection of debt incurred by a consumer primarily for personal, family, or household purposes — not to corporate or business debt.
The Fair Credit Reporting Act (FCRA) protects information collected by consumer reporting agencies such as credit bureaus, medical information companies, and tenant screening services. Information in a consumer report cannot be provided to anyone who does not have a purpose specified in the act.
While the FDCPA applies only to collection agencies, the Texas Debt Collection Act applies to original creditors as well. Under the law, the act protects consumers against abusive and fraudulent collection tactics.
Collecting Debt: What’s Isn’t Allowed
Both the Texas Debt Collection Act and FDCPA place similar restrictions on debt collection practices. The FDCPA states: “A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” Examples include:
Using threats, violence, or other criminal means to harm a person, reputation, or property
Using obscene or profane language
Falsely claiming to represent a government agency such as the police or FBI
Falsely implying that you are attorneys when you are not
Lying about the amount owed or the legal status of a debt
Implying that not paying the debt can land the debtor in jail or get them arrested
Ringing the debtor’s phone repeatedly to annoy, abuse, or harass, or calling before 8 a.m. or after 9 p.m.
Remember, under Texas law, these standards also apply to original credit holders, not just third-party debt collectors.
Collecting Debt: What Is Allowed
You can, of course, legitimately call, email, or text a delinquent consumer in a businesslike manner to try to collect what’s owed to you. In a worst-case scenario, there is always the option of taking the person to court to recover the money owed. The limit for claims in Texas small claims court is $20,000.
Even if the debt owed is more than $20,000, small claims court is more affordable than civil court action, so you may choose to opt for less.
A small claims judgment can be appealed to a county court for the county in which the small claims court is located. Unlike most appeals, the appeal of a small claims court judgment results in a completely new trial in the county court. However, a defendant appealing a small claims judgment against them must post a cash deposit or a bond in an amount equal to twice the amount of the judgment. No further appeal is available, so if you win the appeal of a small claims judgment, you will be able to collect your judgment from the cash deposit or bond. In some narrow circumstances, a small claims judgment can be appeals without a cash deposit or bond if the appealing defendant files a “Statement of Inability to Afford Payment of Court Costs.” Procedures are available to challenge the appealing defendant’s Statement of Inability to Afford Payment and require them to post a cash deposit or bond.
If you win in small claims court, you can file for a writ of garnishment, allowing you to order a third party, such as a bank, to turn over assets to you that they hold in the name of the defendant you sued.
Another avenue to collect is placing a judgment lien on real estate property owned by the debtor. By filing a judgment lien, if the debtor sells any non-exempt property, you may be able to get all or some of the money you are owed from the proceeds of the sale. A judgment lien lasts for 10 years.
Homes in Texas are protected by homestead law, so you cannot place a lien directly on the house and collect if the owner sells it.
If the sum owed is much greater than $20,000, then civil lawsuit action is available, with all of the tools mentioned above as settlement options.
Using a Debt Collection Agency
Some business owners who get tired of the constant effort needed to collect debts may opt to hire a debt collection agency. The agency will pay a portion of the money owed to you and then try to collect the full amount, often through threats — or the actual use — of lawsuits.
What If the Debtor Files for Bankruptcy?
If the person owing you money files for bankruptcy, your status as a creditor will be affected by which type of bankruptcy is filed — Chapter 13 or Chapter 7. In either type, the court will place an “automatic stay” on debt collection efforts and on any repossession or foreclosure actions that may be in process. Unless you are a secured debt holder, your options thereafter are limited.
Under Chapter 13, the debtor must propose a plan to use disposable income to pay back as much of the debt they owe as possible. The plan will be presented at a meeting of creditors, during which you can object to the terms and press for your repayment.
Under Chapter 7, the filer’s non-exempt assets will be sold to pay creditors to the greatest extent possible. However, Texas law exempts homes and cars (for the most part) from being sold, so proceeds may be minimal. There will still be a meeting of creditors, during which you can make your position known.
How a Creditor Rights Attorney Can Help
It can be frustrating dealing with delinquent consumers or clients. I stand ready to help with your situation. I can advise you of your best options for collecting what’s owed to you.
Contact me immediately at Uloth, P.C. if you’re anywhere in the Dallas area, including Addison and Plano. I will bring my more than three decades of experience in business dispute resolution and litigation to bear on your dilemma.