Commercial Debt Collection Laws in Texas – A Startup Attorney’s Guide

1. Understanding Debt Types and Governing Statutes

Consumer vs. Commercial Debt: Consumer debt arises from personal, family, or household transactions and falls under the federal Fair Debt Collection Practices Act (FDCPA). Commercial debt is unpaid obligations from business-to-business transactions. Commercial collectors in Texas are not subject to the FDCPA’s requirements.

Governing Texas Law: Commercial collectors must comply with Texas Finance Code Chapter 392. This Chapter parallels many FDCPA prohibitions but addresses only business debts.

• FDCPA (15 U.S.C. § 1692 et seq.) covers consumer debt collectors nationwide. (FTC)
• Texas Finance Code § 392.001–.404 applies to commercial debt collectors. (Texas Public Law)

2. Statutes of Limitation

Deadlines to sue on unpaid debts are critical. Texas Civil Practice & Remedies Code § 16.004 sets a four-year limit for the following:

After four years from default or last payment, the debt is time-barred—enforceable by payment but not by lawsuit. (Texas State Law Library)

3. Licensing & Bonding Requirements

• Surety Bond: Texas Finance Code § 392.101 requires every commercial collector to file a $10,000 surety bond with the Secretary of State. (FindLaw)
• Registration: The collector must also register with the Secretary of State. Unbonded activity is unlawful and can lead to injunctions and fines.
• Search Tool: Verify bond status via the Texas Secretary of State’s Debt Collector Search. (SOS)

4. Prohibited Practices & UDAP

Under Texas Business & Commerce Code § 17.46 (Deceptive Trade Practices Act), private entities cannot engage in unfair or deceptive acts (UDAP). Key prohibitions include:

• Misrepresentation of debt amount or legal status.
• Threats of arrest or criminal prosecution.
• Public disclosure of debtor’s embarrassment (posting notices at work).
• Communications that imply attorney involvement when none exists.

Consumers and businesses have a private right of action and can recover up to:

• Actual damages.
• Up to $20,000 in additional damages for knowing violations.
• Attorney’s fees.

The Texas Attorney General also enforces UDAP against unscrupulous collectors. (Texas State Law Library)

5. Post-Judgment Remedies

Once a judgment is obtained, a startup may pursue several remedies under the Texas Rules of Civil Procedure:

• Writ of Execution: Levies on bank accounts or property.
• Garnishment: Court order for employer or third party to withhold wages or rents. Wages garnished limited to 25% of disposable earnings.
• Liens: Real property liens under Tex. Prop. Code §§ 52.001–.009.
• Turnover Orders: Require third parties to turnover assets.

6. Pre-Suit Best Practices

Before filing suit, follow these best practices to preserve rights, build credibility, and increase recovery:

Demand Letter Template
[Date] [Debtor Name & Address]

Re: Payment Demand for Invoice #[0000]

Dear [Name],

Our records show an outstanding balance of $[Amount], due since [Due Date]. Please remit payment in full by [Date 10 days out] to avoid further action.

Sincerely,
[Your Company]
[Contact Information]

• UCC Notice: File a UCC-1 financing statement to preserve security interests.
• Documentation Checklist:
  • Executed contract or invoice.
  • Proof of delivery/performance.
  • Payment history.
  • Communications log (emails, calls).
  • Demand letters and responses.

7. Litigation Steps

• Filing Suit: File petition in justice or county court (depending on amount). Include jurisdictional and factual allegations.
  • Justice Court: Claims up to $20,000.
  • County/District Court: Claims above $20,000.
• Service of Process: Serve citation and petition; defendant has 14 days (justice court) or 20 days (county/district). Failure to answer may lead to default judgment.
• Requests for Admission: Serve admissions to narrow issues. Failure to deny deemed admission. Use strategically to limit disputed facts.
• Discovery: Propound written discovery, depositions to gather evidence (documents, financials, contracts).
• Summary Judgment: Consider motion if no genuine dispute on liability or damages.
• Trial & Judgment: Present case; obtain judgment awarding principal, interest, and collection costs.

8. Practical Tips & Compliance Checklist

Startup Debt Collection Compliance Checklist

• Confirm collector licensing & bond status.
• Verify FDCPA exemption for commercial debt.
• Review limitation deadlines; file suit timely.
• Document contract, performance, and communications.
• Send demand letters & preserve rights via UCC filings.
• Monitor UDAP compliance; avoid prohibited practices.
• Train staff on Texas debt laws & recordkeeping protocols.
• Consider ADR before litigation to reduce costs & preserve relations.

9. Recent Key Texas Appellate Cases

• Miller v. BAC Home Loans Servicing: 5th Cir. held mortgage servicers fall under the TDCA’s definition of debt collectors, expanding potential liability. (CaseMine)
• McCaig v. Wells Fargo Bank: TDCA claims not limited to original debtor parties; third parties have standing. (Casetext)
• State Court Judgment, 2017: A collector fined $25 million for filing suits in wrong county and publishing unredacted personal data. (Goodwin)

10. Conclusion & Next Steps

Effective commercial debt collection in Texas demands precision: timely actions, strict compliance, robust documentation, and strategic litigation planning. Startup attorneys should advise clients to implement the checklists, stay updated on legal changes, and weigh ADR options first. By combining legal knowledge with practical processes, startups can optimize recoveries, minimize risk, and focus on innovation and growth.

Consult a Texas-licensed attorney to tailor these guidelines to your startup’s circumstances and ensure full compliance with state debt collection laws.