Debt Collection | Creditors Rights

The Collection Process

The legal remedies afforded to creditors depend on whether the debt is secured or unsecured. If the debt is unsecured (no collateral or lien), the creditor or the creditor’s attorney will typically start the collection process with a “demand letter” whereby the debtor is notified in writing that the creditor has formally demanded payment. A demand letter from our collection attorney in Dallas may influence the debtor to pay the debt in full or otherwise negotiate a mutually agreeable settlement without the necessity of costly litigation. If you are owed money, the time in which you have to collect the debt is limited. As such, it is recommended that you contact a debt collection attorney as soon as possible.

The demand letter serves many purposes and in some cases is required by law before other collection strategies can be implemented. As discussed above, the demand letter formally notifies the debtor that you intend to pursue the debt. If done properly, the demand letter can also create a 30-day deadline in which the debtor can either pay the debt or risk having to pay the creditor’s attorneys' fees. This can be a powerful incentive for payment by the debtor and a powerful tool for creditors.

If, for example, the claim is based on an oral or written contract, the claimant/creditor may recover reasonable attorney’s fees if the debtor fails to tender the debt before the expiration of 30th day after the claim presented. There are other instances in which a creditor may be entitled to reasonable attorneys' fees. As such, you should contact a collection attorney to evaluate the proper collection efforts. Our Dallas based debt collection law firm can provide advice on the most cost efficient and productive ways to collect a debt.

If the demand letter does not produce the desired results, you can pursue the debt in court and reduce it to a judgment. Our debt collection attorney has filed hundreds of lawsuits on behalf of unsecured creditors and understands the importance of efficiency in this phase of the process.

Post-Judgment Collection

Abstract of Judgment

Once you obtain a judgment, the first post-judgment collection method usually entails recording an abstract of judgment in each county in which the judgment debtor owns non-exempt real property. A properly obtained and recorded abstract of judgment will serve to “perfect” the judgment lien and thus establish the creditor’s lien priority with respect to any ownership interest of the debtor in any non-exempt real estate located in the county where the abstract of judgment is recorded. Because abstracts of judgment are only effective as to the county where they are recorded it is essential that they be recorded in each and every county where it is suspected the debtor may now own or possibly in the future acquire real estate. Abstracts of judgment need not describe specific property as they are indexed in county real property records by name and immediately attach to any non-exempt real estate interest of the debtor immediately upon the earlier to occur of the following: the recording of the abstract of judgment or the debtor’s acquisition of non-exempt real estate.

Writ of Execution

A writ of execution is served on the defendant by the constable or sheriff. This type of writ authorizes the sheriff or constable to levy upon the judgment debtor's non-exempt property (real estate or personal property) located within their jurisdiction. If the judgment debtor owns non-exempt property, the constable or sheriff is supposed to levy and sell the property on the first Tuesday of the month along with the other foreclosure sales.

Writ of Garnishment

The writ of garnishment is also available as a post-judgment debt collection procedure. As in pre-judgment debt collection a writ of garnishment used in post-judgment proceedings requires a third party to describe under oath what money or property of the debtor the third party/garnishee has in its possession. Likewise, the third party/garnishee is prohibited from delivering such money or property to the debtor after the writ of garnishment is served. The third party/garnishee may be required to pay the creditor (garnishor) an amount up to the amount of the creditor’s judgment against the debtor. A creditor seeking a post-judgment writ of garnishment will be eligible for the writ if the creditor holds a valid, subsisting judgment and the creditor submits an affidavit stating that within the creditor’s knowledge the debtor does not possess property in Texas subject to execution sufficient to satisfy the judgment.

Turnover Relief

Creditors in Texas have a procedure to collect valid judgments with court assistance in what is known as a "Turnover Order". The Texas Turnover Statutes work along side of the more common post-judgment procedures. The Texas Turnover statute is found in Texas Civil Practice and Remedies Code Section 31.002, which states that "[a] judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that: (1) cannot readily be attached or levied on by ordinary legal process; and (2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities."

The court may: (1) order the judgment debtor to turn over nonexempt property that is in the debtor's possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution; (2) otherwise apply the property to the satisfaction of the judgment; or (3) appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor.

Domestication of Foreign Judgments

The Uniform Enforcement of Foreign Judgments Act found in Chapter 35 of the Texas Civil Practices and Remedies Code allows Texas courts to recognize judgments from other states. As such, a final judgment from another state shall be given full faith and credit and once properly domestictaed in Texas, shall have the same effect as a Texas judgment.

The most common mechanism to enforce a judgment from another state is to domesticate the judgment in accordance with the UEFJA. Upon proper filing, the foreign judgment is treated as a Texas judgment and the collection processes outlined above are then viable.

What happens if the Debtor files Bankruptcy?

It depends on what chapter the debtor files under. Filing a bankruptcy petition "automatically stays" (stops) most collection actions against the debtor or the debtor's property.

Generally speaking, a Chapter 7 bankruptcy is one where the debtor seeks to discharge their debts. The assets of the debtor are liquidated and the proceeds are distributed to the unsecured creditors. Certain statutory criteria must be met before a debtor can get a Chapter 7 discharge. As such, a debtor may not obtain a discharge of your debt. If you are a secured creditor, a motion can be filed requesting permission to proceed with a foreclosure of your lien.

In a Chapter 13 bankruptcy, the debtor is generally seeking to pay his/her prepetition debts over time in accordance with a plan. It would be wise to seek counsel if someone that owes you money files bankruptcy under Chapter 13, or any chapter for that matter. Contact our office to see if we can help you navigate the bankruptcy process from a creditor’s standpoint.