In order to keep your lending business up and running, it is necessary that you collect payment for the services you provide. Unfortunately, you are likely going to come across some unreliable customers in this line of work.
Making a borrower pay their overdue bills can be a harrowing experience, especially in times of stringent financial situation. Hence many companies hire debt collection agencies who handle the debt collection process while the company can focus on the business.
However, you only have a limited time to make a customer repay the debt. Many states have placed laws that dictate how long creditors can take to collect an overdue payment. Once the time limit is up, debt collectors can no longer take legal actions concerning a debt.
Texas consumer debt laws:
Texas legislature has enacted laws that work hand in hand with the federal regulations on debt collection. These laws limit the actions that debt collectors can take to enforce the debt and put a time limit on how long they can take legal actions concerning consumer debt. Below, we take a look at the relevant act and how it works.
Statute of Limitations:
Texas laws provide debt collectors a certain amount of time to file a lawsuit against a borrower for an unpaid debt. This time window is specified by the Statute of Limitations (SOL) and varies from one state to another. Once the time period is up, debt collectors can no longer seek a legal remedy to collect the money owed. This means that the debt is now time-barred.
In Texas, the statute of limitations on unpaid debt is four (4) years. Debt collectors cannot sue a borrower after failing to obtain a payment on the debt in four years. Though the debt still exists, the statute of limitations prevents the creditor from getting a court order to recover it.
However, this does not mean that creditors cannot contact customers or ask them to pay. You may be able to call a debtor or write emails and letters in an attempt to collect the debt. But you cannot file a lawsuit against them after the statute of limitations has expired. Such an action could go against the Fair Debt Collection Practices Act (FDCPA).
There are varied opinions regarding the commencement of the SOL, but it is usually the date of the first missed payment. In some states, SOL restarts after the borrower makes a new payment, even a partial payment, on the debt
How does debt collection work in Texas?
The debt collection process generally starts about a month after a debitor fails to make a payment on a debt. This is a point at which the creditors mark the debt as delinquent. Borrowers usually start to receive notices from the creditors at this point, but things may escalate if they are unsuccessful.
If the creditors fail to collect the debt in around six months, they might sell the debt to a collection agency. This indicates that the creditors have given up on the efforts to obtain payments on their own, and selling the debt to a Texas collection agency is a way to minimize their loss.
The consumer will now likely hear from the collection agency about the unpaid debt. Collection agencies are entities that collect outstanding debts for creditors. Many companies find it cost-effective to hire debt collectors instead of spending their own resources to pursue payments on delinquent accounts.
How to deal with a time-barred debt in Texas?
The statute of limitations only bars creditors from filing a lawsuit; it does not prevent them from contacting the debtor to make them repay the debt. Hence, attempting to collect an overdue payment through contact is not time-barred even though the possibility of suing the debtor in a court of law is time-barred.
If a creditor (or a debt collection agency, in case the creditor has transferred the debt to an agency) is able to revive a time-barred debt, they can start seeking the money or file a lawsuit against the debtor. In the past, time-barred debts in Texas could be revived by a verbal acknowledgment of the debt by the customer or making payment (even partial payment) of the principal amount or interest on the debt.
These actions created an issue for borrowers, known as zombie debt, which could restart the time limit formulated by SOL. However, the new law introduced in 2019 states that such activities cannot restart the clock on SOL. The law also requires creditors and debt collectors to inform debtors about the expiration of the limitation period in writing.
Collecting debts from businesses and individuals is hard, and the statute of limitations only makes the process further difficult. Whatever steps you decide to take, remember to take them fast because the longer you wait, the harder it will be for you to collect the debt.
Evie harrison is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs.
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