Austin Texas Lawyer Tip: Texas Collection Law Basics

Texas is an interesting state to attempt collection, and for our out of state readers, it is probably important to do a brief overview of collection in Texas. At the outset, collection in Texas is extremely difficult compared to other states, and activities that you may be used to doing in other states are very often not available in Texas. Although literally books could be written on this subject, I've compiled a list of the 10 things you need to know about Texas collection law.

1. There are large property exemptions -- The Texas homestead exemptions are more expansive than you might experience in states that do not begin with the letters "Florida". This makes turning judgments into cash difficult and futile. The good news is that, if you can prove it, debtors cannot convert non-exempt property into exempt property undert Tex. Prop. Code Section 42.004.

2. Texas allows non-judicial foreclosure. The creditor in Texas with a security interest very frequently can recover their collateral without involving the court system at all.

3. Texas bank garnishment allows banks to charge for their fees. No one says the bank lobby in Texas doesn't do its job. When a creditor attempts to seek a garnishment of a bank account, not only do they not have much ability to get access to the account balance without a voluntary statement from the debtor, often if a post judgment garnishment is filed, the already harmed creditor may have to pay the bank for its fees in filing answers to garnishment actions (often as much as $1500 just to file an answer and saying, "nope, he ain't got nothin'").

4. There is no wage garnishment in Texas. Yep, you read that right. Unless you are collecting for child support, wages are exempt, so attempting to garnish wages can make you a defendant in another action.

5. There is an excellent Turnover Statute. One good statute for collectors of unsecured claims is the turnover statute, which allows you to either set up a receiver to run businesses for the purpose of turning funds over, or to take assets that are not subject to execution and turn them into cash. And even better, the burden is on the debtor to show that the property is exempt.

6. There are no exempt assets for a business. Most businesses have lines of credit, so unsecured creditors are often unable to collect anyway, but businesses do not get the benefit of the vast exemptions. So if your debtor puts his car in the company's name and it doesn't have a lender? Have at it.

7. Texas follows the Uniform Enforcement of Foreign Judgments Act. So if you need a judgment domesticated in Texas, and you're familiar with UEFJA procedures, they will be very familiar to you.

8. The Texas Homestead Property Exemption is unlimited in value. Yep, if you have $10,000,000 in equity in your homestead, 100% of that is exempt from execution, and there is no forced sales of homestead by unsecured judgment creditors.

9. The Mechanics Lien Statutes are complicated. As a bonus, they are strictly interpreted, so if you don't do your notices correctly, you may very well be toast. However, you will always have that contract claim against the defunct general contractor and an unjust enrichment claim against the owner who doesn't pay for value.

10. Fraudulent Transfer Actions are often separate lawsuits. Unfortunately, there is often not a post judgment procedural remedy related to fraudulent transfers, and often involves filing suit after the judgment for such a determination. Texas has particularly weak successor liability statutes as well, determining that the buyer of the asset at an asset sale usually has no liability to the unsecured creditors of the asset seller (unless there was an insider relationship and/or less than reasonably equivalent value was given).

Thus, Texas is a challenging place to collect on a judgment, and the best place to be in most litigations is to be a secured lender. So if you are lending to a Texas debtor, it is very important to attempt to get a security interest in collateral since that is very often the only asset available for collection.

Credit Card Agreements May be Implied under Certain Circumstances

In a recent case out of a Dallas, the Court found that a credit card agreement may be implied under certain circumstances. In this case, Bank X issued a credit card to the debtor. Bank X then merged with another bank, Bank Y. Bank Y sued the debtor to collect the balance on the credit card. The debtor argued that Bank Y had not produced an agreement between the debtor and Bank Y, that the debtor had not made an agreement with Bank Y, and that the debtor was, therefore, not liable.

Even though there was no written agreement, the Court found that the debtor and Bank Y had an implied agreement. An “implied contract” can arise from the acts and conduct of the parties.

The Court noted conduct of the parties evidencing an implied agreement. The initial interest rate on the account was set forth on the first billing statement, and the financial terms in effect each time the card was issued were set out on each monthly statement. One of the monthly statements informed debtor of merger and stated that words “we, us and our” as used in cardmember agreement now referred to bank Y. Even after debtor was given notice of the merger, new charges were made on account almost every month and late fees and “over the limit” fees were periodically assessed which the debtor did not object to or dispute. The Court determined that based on the series of transactions reflected on the account statements, it was reasonable to infer that the debtor agreed to the full amount shown on the statements and impliedly promised to pay the indebtedness.