Like most Americans, nearly every Texan has some kind of debt, and many Texans have a combination of different types of debt. The following is an overview of the different kinds of debt in Texas, which our office assists clients with every day.
Different Types of Debt in Texas
Secured debt is debt that is “collateralized” or backed by an asset that can be seized by the lender in the event that the borrower defaults on repaying the debt. For secured debts, the credit check process by the lender often involves self-disclosure of assets owned by the borrower if the lender is not already aware of the asset which will serve as collateral (such as vehicle loans where the car or truck purchased is pledged by the borrower as repayment for the loan in the event the borrower defaults).
Unlike secured debt, unsecured debt is a debt that has no asset attached as collateral and is thus only backed by the agreement of the borrower to repay the debt. The borrower signs a contract agreeing to repay the borrowed monies, and if the borrower fails to do so, the lender may take such actions as raising interest rates, charging penalties, or filing a lawsuit for a breach-of-contract claim. Types of unsecured debts include credit cards, “store cards,” medical bills, and gym and club memberships.
Revolving debt is a type of debt that allows a consumer to borrow up to a maximum amount on a recurring basis over a period of time. This is sometimes referred to as a line of credit. Revolving debts may be secured by an asset, such as a home equity loan, or unsecured, such as a credit card.
Student loans have become common in recent decades and can range from tens to hundreds of thousands of dollars depending on the expenses incurred while in college or grad school. However, student loan debt is often among the most manageable debt types, thanks to specific repayment programs that include income-based repayments and eventual loan forgiveness.
Mortgages are loans with specific interest rates for the dedicated purpose of purchasing homes, making them a form of secured debt. They have been noted as the largest and most common form of debt that Americans carry. They may last as long as 15-30 years on average and carry low interest rates compared to other types of loans.
How the Laws Apply to Debt Collection
As discussed further below, the Texas Legislature has seen fit to set a “statute of limitations” of four years on lawsuits from creditors seeking to collect on unpaid debts. This means that following the passage of four years, if a lender does not assert its right to bring a lawsuit against a borrower for failing to make payment on a loan, the creditor is forever barred from doing so.
Legal experts and the Texas Courts disagree on how to count the four-year period. While general wisdom has previously been four years from the last payment date to the original creditor, some courts have recognized, and consumer lawyers have fiercely advocated, to have the clock start running from the time that the creditor knew or should have known that default on the debt was on the horizon.
In either event, if a lender attempts to bring a lawsuit, the lawsuit will most commonly take the form of a breach-of-contract claim—because all loans with large companies involve executing contracts agreeing to repayment terms. Any efforts to apply the statute of limitations must be presented as an affirmative defense by the borrower, with documentary and/or testimonial evidence presented by the borrower showing the time for a lawsuit has passed. As this is a matter steeped in procedural specifics, it is recommended to seek the help of a licensed and qualified attorney when attempting to raise the statute of limitations defense in a debt case.
Texas Debt Collection Act
The Texas Debt Collection Act is the State of Texas’s equivalent of the federal Fair Debt Collection Practices Act (FDCPA). Both laws aim to protect consumers from unfair collection practices and do so by prohibiting debt collectors from using abusive, fraudulent, or misleading tactics during attempts to collect debts. Examples include excessive or threatening phone calls by debt collection agencies, law firms, or debt buying companies—indeed, this is a booming business—are all barred by this strict Texas law. The TDCA also places Texas limitations on debt collection by creating a statute of limitations for bringing lawsuits against borrowers.
Statute of Limitations on Debt in TX
How long can a debt be collected in Texas? Texas limitations on debt collection are subject to a year statute of limitations on breach of contract actions for unpaid debts, working in conjunction with the Texas Debt Collection Act. Together these laws limit the time that a lender or a buyer of the lender’s debt has to bring a lawsuit against a defaulting borrower.
What If the Statute of Limitations Has Passed?
How long can debt collectors try to collect in Texas? In Texas, debt collectors only have four years to bring a lawsuit on debt—the statute of limitations on debt in Texas. Most of the time, the debt collection statute of limitations in Texas is counted from the last payment, or first default, on the debt. However, in some cases, courts have stretched the date even further back in time to include when it was becoming likely or obvious that the borrower would be unable to pay back the debt. Indeed, a strong lawyer can help a client make this case in the often borrower-friendly courts of the State of Texas, and should be consulted to ensure that all options are exhausted when answering a debt lawsuit.
Being Sued for Old Debt
In creditor-debtor litigation, the idea of a debt being “old” is a relative term. To the borrower, a debt could have seemed like it has been around forever or forgotten about as the borrower attempts to move on with his or her life. However, the law governs in all such cases, and four years is the dividing line between truly “old” and still viable for a lawsuit.
Contact The Law Offices of Kretzer & Volderbing P.C. Today
When you are trying to figure out how to navigate a lawsuit related to a debt, you will need lawyers with specific experience with debt litigation in Texas and who have the right knowledge and resources to help you.
Contact us online today to discuss your concerns with a professional attorney.