1. Texas and Small Business Debt Collection
2. Ins and Outs of Business Debt Collection

Business debt collection laws vary from state to state, so it's important to understand the rules for debt collection in your jurisdiction. Many states provide consumer protections that prevent debt collectors from harassing you and making threats, but the collector still has a variety of other legal means to recoup their debt.

Texas and Small Business Debt Collection

Texas is a state whose debt collection laws include a multitude of consumer protections. These laws can be very beneficial to individuals dealing with debt but can harm small businesses looking to retrieve funds owed to them.

Texas' laws related to debt collection can be found in the Finance Code Title 5, Chapter 392. Chapter 392 contains several subchapters that outline what debt collection solutions businesses can use and remedies available to consumers if a business uses an illegal debt collection method.

In Subchapter D of the finance code, you can find several debt collection methods that aren't allowed in Texas. Under Subchapter D, threatening someone with violence in order to pay a debt is illegal. Debt collectors are not allowed to intimidate debtors into paying what they owe. Similarly, a debt collector cannot make a false accusation of fraud against a consumer as a form of blackmail to have the debt paid.

However, debt collectors are afforded some protections under Subchapter D. For instance, this section of the finance code gives debt collectors the ability to use any and all legal means to recoup a debt. Deception is not a legal or acceptable method of debt collection under Subchapter D.

In communications with consumers, for example, debt collectors are only allowed to use their business's actual name. Debt collectors are also not allowed to send correspondence designed to mislead the consumer into thinking it is from a lawyer's office.

Penalties for violating the Texas Finance Code are outlined in Subchapter E. A person who has made a legitimate error will not face a penalty. Only those who knowingly and intentionally violate the code will face criminal charges.

Violating the Texas Finance Code is a misdemeanor crime that comes with a minimum penalty of $100 and a maximum of $500. Consumers also have the ability to pursue further civil damages against the debt collector that violated the code.

Ins and Outs of Business Debt Collection

For finance companies, having businesses as clients can be a very lucrative endeavor, particularly if the business in question needs to purchase items using a loan. A business that correctly makes use of loans may be able to generate a profit and develop strong, mutually beneficial relationships with financing companies.

Unfortunately, businesses also have a very high chance of defaulting on their debt, and, depending on what the debt was for, the amount that the business owes may be substantial. A finance company that needs to collect a debt from a business client will need to carefully consider how aggressive they should be when pursuing the debt.

If the finance company wants to maintain a relationship with a business client that has defaulted on a debt, personal communication is the best option, as hiring a debt collector or filing a lawsuit can cause bad feelings. Before using more aggressive means, the finance company can attempt to resolve the debt by:

  • Mailing a letter alerting the business of the situation.
  • Phoning the business owner personally to discuss the issue.
  • Arranging an in-person visit to the business to talk about the debt.

It's possible that the business has missed a debt payment because of financial troubles, and if this is the case, the finance company may be able to work with the business so that the relationship isn't soured.

Hiring a debt collection agency with a background in commercial debt may be necessary if the business isn't cooperating with the finance company. Commercial debt is not regulated by the Fair Debt Collection Practices Act and is instead governed at the state level. This means that the methods the agency can use to collect the debt will depend on the rules of the state where the debt accrued.

As a last resort, the finance company may need to file a lawsuit against the business that has defaulted. Litigation is really the only choice if the business is avoiding debt collection agencies and refusing to respond to communications from the finance company.

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