We often get calls from people about collection issues on credit cards and other consumer debt.

These calls come from both the consumer, as well as business which are owed money.

Our firm does not handle consumer debt cases, which is what personal credit cards are. We only handle commercial collection matters, so if you do need legal assistance in the consumer area, you will need to find another law firm that can help you.  However, I might be able to give you a few general pointers, for both the consumer and for businesses that extend credit to consumers.

Consumer:  You have just been served with a law suit claiming that you owe money on a credit card.  What do you do?

If you DO NOT owe the debt, or if you have a reasonable defense as to why you do not owe the debt, then it is worth fighting the case.  For example, the credit card company is suing the wrong person.  You never had the credit card with them, so owe them nothing.  Maybe you paid the balance in full, or at least a portion of it, and you have the cancelled check as proof. If you do have a defense, then you should find an attorney to help you with it if you have been sued.

However, if you DO owe the money but just don’t have the funds to pay it, filing an Answer or making an appearance in the law suit may not be the best thing.  Sometimes doing nothing is the best thing.

Filing an answer to a lawsuit causes the credit card company’s attorney to have to prove their case, which if there is no real defense, does nothing but increase the amount of attorney’s fees.  If you do nothing after you are served with the law suit, then they may get a default judgment against you, but the attorney’s fees will be less than if you make them prove up their case.  Understand that doing nothing may be the best thing to do ONLY if you owe the money and have no defense that you can raise as to why it is not owed.

The fact that you don’t have the money to pay the debt, or you lost your job, or you have medical bills, etc., is a REASON why you can’t pay.  It is NOT a defense.  That just says why you can’t pay it now; not that you don’t owe it.

If you have some funds, it may be beneficial to call their attorney and see if you can settle the matter.  The credit card company is not required to work with your or to even try to settle.  However, if they take a judgment against you, collection against an individual in Texas is very difficult with our homestead laws and strong exempt property laws.  They may have a worthless judgment if all of your assets are protected or exempt.  If so, then it may be in their best interest to take what they can.  A judgment will hurt your credit, but chances are that if you can’t pay the bill, your probably don’t have the best credit either.  However, no one wants to be looking over their shoulder all the time looking to see if the judgment creditor or their attorney might have found an asset that they could attach and take to help pay the judgment.

If you do reach a settlement with their attorney, make sure that you get it in writing.  That is the only way that you can prove what was agreed to.  Make sure that you comply with what you have agreed to as well, since a day late or a dollar short and you have broken the agreement.

Business: You have extended credit to a consumer, perhaps by credit card, and they have not paid you.  What do you do?

Businesses should establish internal procedures to follow up on outstanding accounts receivable if they are past due by a certain number of days, such as 30 or 40 days.  The sooner you pursue outstanding receivables, the better your chances of collection.  Old or “stale” claims can be very difficult or impossible to collect.

You should try to contact the consumer to see if there is any reason why they have not paid the debt.  Are they dealing with a cash flow issue, or is there some dispute?  Perhaps the goods or services shipped were defective or never received.  Maybe the customer did not get what they ordered or were expecting.  This is the point where you can resolve most issues, and usually maintain a good relationship with the customer.  If there was a mistake or a problem, you have an opportunity to fix it.  If done promptly and courteously, this can be a great way of maintaining a loyal customer and building good will.

If your customer does not dispute the debt, then you should try to see if a payment plan can be worked out.  Often times customers faced with financial difficulty are embarrassed and will not contact the business to say they are having problems.  However, if you are respectful and let them know that you are willing to work with them, within reason, you can often reach an agreement to get the debt paid, and maintain a good client relationship.

However, sometime the customer will not respond to you or will not follow through with agreed payments.  Then what should you do?

If you are in the business of selling goods or services, and not in the business of debt collection, then the Texas and Federal Fair Debt Collection Practices Acts do not apply to you.  However, if you hire a collection agency to assist with collections, it does apply to the collection agency.  Since the collection agency is acting as your agent, anything that they do wrong in violation of collection laws is imputed to you.  In other words, your agent’s wrongful actions will be treated as if you did them yourself.  Be very careful to make sure that you are dealing with a reputable agency if you want to try to pursue collections through a collection agency.

One other drawback with using a collection agency is that if they are not able to collect on the debt, the claim is that much older or more stale and by this time the customer is probably tired of the calls and even more willing to ignore you and your debt.

As mentioned above, collection against an individual in Texas on consumer debt is very difficult given our state’s strong homestead and exempt property laws.  For this reason, it is very difficult to find an attorney that will handle consumer collections on a contingency fee basis, where you don’t pay any attorney’s fees, and the attorney only collects payment on what they recover.  So unless you have information to show that the consumer has non-exempt assets available to pay a judgment, you might need to pay an attorney straight time or consider handling the collection yourself.  In Texas, Small Claims Courts have jurisdiction of up to $10,000.  If your damages are less than that, you can bring suit yourself, without an attorney.  Corporation and LLCs are able to be represented through an officer or a member/manager, and do not need to hire an attorney.

As discussed above, collection in consumer cases is pretty difficult in Texas.  For that reason, if you are able to reach a settlement with a customer, if may be in your best interest to do so.  If you have concerns that they may not make agreed payments after suit is filed, you can usually ask the Court to put your case on hold to give the customer a chance to pay.  That way, you are not dismissing the case until all the settlement payments have been made if the customer required a payout.  Make sure that all agreements are written so that everyone is clear on what has been agreed to.

If you have not been able to settle the case and have to take a judgment against a customer, make sure that you order an Abstract of Judgment and file it in the county where your customer lives or where you know they may own real property.  This will put a lien on all non-homestead real property in that county, if any, and will have to be paid off if they want to sell the property.  Judgments are good for 10 years, so if you want to keep the judgment “alive”, make sure that you talk with an attorney about what needs to be done before those 10 years are up and the judgment becomes dormant.

So what you do and how you handle the debt will depend upon whether you are the creditor or the debtor, whether you have any defense or not, how collectible any judgment might be, and how willing the other side is to cooperate with you to get the matter resolved.

For more information regarding debt collection on Consumer Debt and the Texas and Federal Fair Debt Collection Practices Act, or to file a claim through the Texas Attorney General’s Office, click: https://www.oag.state.tx.us/consumer/debt_collection.shtml.

f you believe that you may be the victim of Identity Theft and want to know what you should do, please take a look at this link to the Federal Trade Commission on what to do to recover from identity theft: http://www.ftc.gov/bcp/edu/microsites/idtheft//consumers/defend.html.

I hope that some of these pointers will help!

• There must be no Will.  If the person that died left a Will, then this is not the right procedure to use.

• The estate must be less than $50,000 in value (not including the value of the homestead or other exempt property.)  So if the value of the estate is more than $50,000, excluding the homestead and other exempt property, then this is not the right procedure to use.

• The only real property that can be transferred is the Homestead property.  If there are any non-homestead properties, like other homes, lots, time shares, or royalty interests, then this is not the right procedure to use.

• It requires that 30 days have passed since the date of death, and no petition for the estate has been filed or granted.

A Small Estate Affidavit requires two (2) disinterested witnesses to file a sworn affidavit affirming Heirship.  Since there is no Will involved, the heirs-at-law will take their intestate share, just like with a Determination of Heirship.

The Affidavit must list all assets and liabilities, distributees under the laws of intestacy, and their relationship to the deceased.

The court does not have to grant the Small Estate Affidavit, even if all of the requirements are met.  It is within the discretion of the Judge to sign the Order on the Small Estate Affidavit or not.

If the Judge signs the Order on the Small Estate Affidavit, it should be filed in the real property records where the homestead property is located in order to transfer the homestead property to the proper heirs.  There is no deed prepared to transfer the real property.  The Small Estate Affidavit states whom the heirs are, the percentage that they take under the laws of decent and distribution, and that is the information used to show the transfer of interest to those heirs.

A certified copy of the Small Estate Affidavit and Order can be ordered and used to have access to bank accounts or transfer vehicles and other property to the heirs-at-law.

If it is appropriate and all the requirements are met, a Small Estate Affidavit can be a more affordable way to handle the probate of someone’s small estate.

What that means is that if a member in an LLC gets a divorce, the member’s spouse, if any, is only an assignee of the membership interest.  The member’s spouse may be entitled to receive a portion of the economic benefit if there is a distribution, but will have no right of management and control of the business.

If a member in an LLC dies, then the member’s spouse, if any, and an heir, devisee, personal representative, or other successor of the member, may be an assignee of the membership interest.  Again, the member’s spouse (or heir, devisee, personal representative, or other successor of the member) may be entitled to receive a portion of the economic benefit if there is a distribution, but will have no right of management and control.

Also, if the spouse of the member should die, their community interest in the LLC will only serve to transfer an assignment of the membership interest to a non-member heir, devisee, personal representative, or other successor of the member’s spouse.  That non-member heir, devisee, personal representative, or other successor of the member’s spouse will have no right to participate in the management and conduct of the business.

This has no effect on the ability of the members of the LLC to prepare agreements for the purchase or sale of a membership interest at any time.  Often times, buy/sell agreements are prepared to deal with the event of a member’s death or divorce.

So, the member’s interest in the LLC may be community property, but not the member’s right to participate in the management and control of that LLC.

It is not a very fun discussion to have with your loved ones, but it is essential.  It is particularly important if you want to make sure things are done the way that you want them.  A checklist for your  “talk” should include:

• Last Will and Testament: (that you have one, and where to find it) – If you don’t have one, make one.  It is required in order to pass what is in your estate to the people that you want, with as little expense as possible.

• Medical Power of Attorney: (make sure that your Agents have a copy) – If you don’t have one, make one.  It is required in order to allow someone to make medical decisions for you when you can’t make them yourself, and usually avoids the need for an expensive Guardianship of your Person.

• Statutory Durable Power of Attorney for financial matters: (make sure that your Agents have a copy) – If you don’t have one, make one.  It is required in order to allow someone to handle your financial matters for you, and usually avoids the need for an expensive Guardianship of your Estate.

• Directive to Physicians, also known as a Living Will:  (if you have one, make sure they know where to find it) – This allows you to decide whether you do, or do not, want life support in the event that you have a terminal or irreversible condition.  Often times, spouses are comfortable making that decision for one another, but do you want your adult child or children to have to make that decision for you?  If not, you should prepare one, and discuss with loved ones what you would like in that situation.

• Disposition of Remains: (if you have one, make sure they know where to find it) – This allows you to choose if you want to be buried or cremated so that you do not need permission from a surviving spouse or children.

• Organ Donation: Just signing the back of your driver’s license is not enough.  If you are in that rare 1% situation where you are brain dead and your organs are intact, the hospital is legally obligated to ask your family about donating your organs.  Your license may not be available for family to look at.  Also, your family can override your wishes to donate when you sign the back of your license, so please have that discussion with them while you are healthy, so that they fully understand how you feel, one way or the other.

• Pre-Arranged Funeral Plans: (if you have one, make sure they know where to find it) – This is the contract with the funeral home, and usually requires that you provide the original, especially if it is an older funeral plan.  They usually will not provide a refund, so if you do not use the plan that has been paid for, it will be wasted.  This is also a very good way to make sure that your wishes are followed, and that your family will not feel pressured into doing more than you wanted.

If you need assistance with preparing your documents, please give us a call.  We can help.

If you back up your data by some type of external hard drive, tape drive, or mirror drive, and your backup is in the office with you, it will probably not do you much good if your office burns, floods, gets blown to bits, or someone comes in and steals your external hard drive, etc., when they take your other equipment. If you are only backing up one data set, then you might overwrite good data with data that has been infected by a computer virus.

Offsite data backup has become much more reasonably priced, and often will store multiple encrypted data sets going back several weeks, and also may store your data remotely at multiple locations.  Redundancy is helpful in case one of their offsite backup location burns, floods, or gets blown to bits, and it is always nice to go back to the last data set before you downloaded the computer virus.

It is well worth your while to make sure that you automatically backup your data, such as setting it to back up automatically every evening, so that you don’t forget to run your backup.

If your business data is important to you, take the time to make sure that your data is securely backed up offsite.

When is the last time that you backed up?

The first document that should be prepared or updated is the Last Will and Testament. If a couple no longer wants to be married to each other, they probably do not want to leave their property to each other either.

If there is no Will, and you die before the divorce is final, your spouse may wind up owning all of your property.  If you have minor children that may inherit under your estate, your spouse may wind up being the Trustee of the minor children’s trust and be in control of their money.  If you already have a Will, you will likely want to change the beneficiaries, and may wish to name a non-spouse trustee for any minor children.

You should also update or prepare new medical and financial powers of attorney. This way you can name a non-spouse agent to make medical and financial decisions for you if you become incapable of making them yourself while the divorce is pending.  Chances are that if they no longer wanted to be married to you, or you no longer want to be married to them, you probably do not want them making your medical or financial decisions either.

This leads us to the final and perhaps most important document you should consider preparing in the event you are going through a divorce. It is called a Declaration in Event of Guardianship.

Even if you have powers of attorney, your spouse could file a Guardianship to override any of your powers of attorney if you become incapacitated. Normally, your spouse would be the first person that the judge would name as your guardian. By preparing the Declaration in the Event of Guardianship, you can make sure that person that you are divorcing, or that is divorcing you, will never be named Guardian of your Person or Guardian of your Estate.

If you or a loved one is going through a divorce and has questions about their Will or other estate planning documents, please give our office a call.

In that entity book, you should maintain the bylaws or company agreement, buy-sell agreements, shares or unit certificates, member ledger, and minutes of annual meetings.  We also recommend that you keep any documentation received from the Secretary of State’s Office, State Comptroller’s Office, or Internal Revenue Service (IRS) that relates to the entity.  That way, you are keeping all of the imported entity documents together in one place.

Since it is so important to maintain all of the proper entity documents in one location, it is pretty safe to assume that it is also very important to know where you are keeping the entity book.

When is the last time that you saw your entity book?

Commercial collections have gotten quite a bit more difficult lately with debtor business failing or filing bankruptcy and courts not willing to grant things, such as Receiverships, as much to assist with collections on judgments.

Firms like ours have to look at much more closely at which files we would be willing to handle on a contingency fee basis. That also means that our clients have to look much more closely at which files they would be willing to pay an attorney on a straight time basis to pursue.

I have been encouraging our clients to look at the amount of the claim.  If it is under $10,000, they may consider handling it themselves in Small Claims Court if collection is questionable.

While the court may grant attorney’s fees as part of the judgment if you are represented by an attorney, if the debt is uncollectible, then you won’t be able to recover your expenses and costs.  Also, judges often cut the attorney’s fees awarded in a judgment so that the other side has “gotten something”, and is less likely to appeal the case.  In other words, if you get a judgment, it may not cover the full amount of attorney’s fees that you actually paid your attorney.

If the case is not very strong, or there may be a defense or counterclaim filed, then litigation could get expensive.  However, an attorney is more likely to better prosecute your case or defense if it is more complicated.

Also, if the case is filed in Justice Court, rather than Small Claims Court (even though it is the same Judge on the bench), then the Rules of Evidence and Procedure apply, just like in County and District Court. You are at a distinct disadvantage in Justice Court if you are not represented by an attorney, even though the law now allows corporations to represent themselves in Justice Court without an attorney.

Basically, you need to look at how collectible the debt is likely to be.  If it is a fairly straight forward case and very collectible, it may be something that could be handled on a contingency fee basis. If the debt is under $10,000, you have the option of handling it yourself in Small Claims Court.  If you do not have the time or desire to handle it, the obligation owed is over $10,000, or it may be complex, involve a defense or counterclaim, then you need to weigh if it would be worth hiring an attorney on a straight time basis.