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Slaying the Beast, Part 1: Debt Collection from Beginning to End

As a business owner, debt collection can be a daunting task. Fortunately, Texas law offers recourse and respite to make the action less of a hassle and more of a boon for your bottom line. The following information from the experts at The Cromeens Law Firm guides you through the headache of debt collection so your focus can remain where it belongs-on your current projects.

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Avoid Serial Debtors

Let's talk about how to avoid encountering serial debtors. Debt collection begins well before deciding to extend credit to the consumer.

Collecting their contact information, identifying whether they operate as an entity or an individual, and determining which bank they use can be obtained through internet searches, the Better Business Bureau, and court records of the county where the person/company resides.

However, the credit application should provide most of the information you need.

A credit application doesn't need to be the length of War and Peace to obtain the necessary data. Basic information, trade references, credit terms, and a personal guaranty are all that's necessary to be able to determine whether credit should be extended.

The personal guaranty "guarantees" that the individual owner of a company will be held liable for the debts of the company.

Interest and Fees

Determining an interest rate should be a straight-forward calculation since, unless a statute states otherwise, the maximum interest rate allowable in Texas is 10% per annum. If no specified interest rate is agreed upon by the parties, a 6% annual interest, starting 30 days after the amount is due and payable, may be charged.

You'll also want to be sure that your credit terms include a provision stating you're entitled to recover attorney fees for any collection efforts. If you don't include such a provision, you will have to give a 30-day demand with notice that you'll seek recovery of your fees before you begin the collection process.

Ways to Reduce Risk

Once you've decided to extend credit, there are ways you can reduce risk while the credit relationship is still good:

  • Always make and keep copies of checks when you receive payment.

  • Make note and do some investigation if the name of the company changes.

  • Make note of the bank name on any credit or debit cards.

You've done your due diligence and the consumer has cleared all the hurdles. Lo and behold, the credit you extended to them has been abused and they now owe you a great deal of money. How can you go about collecting the money within the means provided by law?

Don't Be a Nuisance

Before attempting to collect a debt, understand that the United States and Texas both have laws that protect consumers from harassment. If the consumer claims you harassed them during the collection of the debt, it could affect your ability to get what you are owed.

Following the proper protocol early on will ensure a timely resolution:

  • First, attempt to contact the consumer with a written notice stating the amount of debt, the name and address of creditor, a statement that the consumer has 30 days to dispute the claim, and a statement that the debtor can request verification of debt within 30 days

  • Next, contact the consumer by telephone at times deemed convenient by law (and not at their place of business unless the courts expressly permit it)-between the hours of 8 am and 9 pm.

Thou Shalt Not...

When collecting a debt, there are certain things the state prohibits a debt collector from doing. Some of them are common sense; others, not so much:

  • Annoying or abusing consumer via telephone

  • Using obscene or profane language

  • Contacting unlawful third parties regarding consumer's debt

  • Using misrepresentations as a means of collecting a debt

  • Implying that nonpayment will result in imprisonment

  • Implying that consumer committed a crime by non-payment

  • Threatening consumers

  • Behaving in other unfair or unconscionable ways

What You CAN Do

So how do you secure a debt? There are two types of liens that can work in your favor during debt collection: the possessory lien and the mechanic's and materialmen's lien.

Possessory Lien: allow you to maintain in your possession any item you have improved until you get paid. For example, if you repair the alternator on a sports car, but the owner doesn't pay up, you keep the sports car until you get paid.

Mechanic's and Materialmen's Lien: allows you to recoup loss of payment by attaching a lien to a property, making it more difficult to sell or forcing a foreclosure to pay the debt. Also known as the M&M lien.

Both the possessory and M&M liens contain restrictions on when and where to file. This depends on whether the property is residential or commercial and whether you are the prime contractor, subcontractor or laborer, the supplier, or something else. All notices must be sent via certified mail.

As with all construction law matters, it is best to consult with the legal experts at The Cromeens Law Firm to determine a best course of action. Cromeens knows when and where to file so that you can get paid in a timely manner.

The Cromeens Law Firm provides clients with expert navigation of Texas law in regards to debt collection. Contact one of our experienced attorneys today by calling 713-715-7334 or contact us online to discuss your options.


This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, please consult an attorney. 

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