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!

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?

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.

Planning ahead to make sure that employees and vendors can still be paid, that receivables can still be collected, and that work can still be done may mean the difference between the business staying in business, or closing the doors for good.

Who has access to the business checking account is just one part of business succession planning.

You may be able to set up personal accounts as “Payable on Death” accounts, or “Right of Survivorship” accounts, so that on your death you can make sure that someone has access to the funds on those accounts.  But when you have a business conducted under a legal entity, like a Limited Liability Company (LLC) or a Corporation, just because a Member, Shareholder, Officer, or Director dies, doesn’t mean the entity dies.  You cannot have a “Payable on Death” account for an LLC or a Corporation. That means that if you want to make sure that someone can access the funds in the account, they need to already be a signer on the account.

If you are incapacitated, you may have Powers of Attorney (medical and financial) that allow you to name an Agent to make medical and financial decisions for you, personally.  However, those Powers of Attorney will not usually allow your Agent to act for you in your role as an officer or director of a business entity.  Again, that means that if you want to make sure that someone can access the funds in the account when you are incapacitated, they need to already be a signer on the business account.

Take some time to think about and prepare a succession plan if you have a business.

If you have any questions, please give us a call.

I have several clients that are presently stationed overseas, but they keep a house within the state, and intend to return here.  Since they “intend to return” to the State of Texas, and have an address that they claim as their residence, even though they are currently living overseas, then Texas is the state of their residence.

We prefer to meet our clients in person, since that usually allows us to communicate more clearly with one another, and make sure that we understand exactly what they would like.  However, that is not always practical.

As discussed, some of our clients are overseas and unable to meet in person.  We also have clients that reside in small towns in Texas that really do not want other people in their town to know their business, which sometimes includes the attorneys working in that town.  We also have clients that are family or friends of other local clients that want to prepare their documents, but don’t know anyone where they live, and would like to use someone that their family or friends trust.  Some just live in rural areas where there are no attorneys, or because of a physical aliment are unable to come in to visit an attorney and are too far away for the attorney to visit.

When we are unable to meet our clients face to face, we can still communicate by telephone and email to help them prepare the documents that they need.  Meeting face to face is always preferred, but the client’s needs can be met using other forms of communication.

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You corporate book holds the documents that you will need to protect yourself if someone ever files suit and tries to go against you personally (trying to pierce the corporate veil) claiming that the corporation is your alter ego or a sham or fraud.

If you are one of the folks that just filed the paperwork with the Secretary of State and paid your filing fee and created a corporation, with nothing more, you might find that you don’t really have the protection that you thought you had.

It is not too late.  If you need assistance preparing Bylaws, ordering a corporate book, issuing shares, and preparing your Minutes from the Annual Meetings of Shareholders and Annual Meetings of Directors, please give us a call.  We can help.

What this proposed House Bill does is say that if you file suit in a case, and you lose, that you will be required to pay the other side’s attorney’s fees, litigation costs, travel expenses and expert witness fees.  It also says that if the attorney that is representing you is handling the matter on a contingency fee basis, that the attorney may also be responsible for paying the other side’s attorney’s fees, litigation costs, travel expenses and expert witness fees too.

As a small business owner myself, I am certainly sympathetic to a business that is sued, and even if they win their case, they have incurred attorney’s fees defending themselves.  So without any additional consideration, it would seem “fair” that if you win your case, the other side should pay your costs, right?

However, you need to think about it a little deeper.  Let’s pretend that you were injured or that someone owed you money for some work you did for them and they didn’t pay you.  Let’s also pretend that you sued them, and for some reason a judge or jury ruled against you (which can happen even if you are 100% right).  It could cause you financial ruin.  You may have to pay not just the other side’s attorneys fees, but all those other additional costs of litigation, like expert witness fees.

There are already laws to punish folks that file frivolous law suits.  Just because you lose doesn’t mean it is frivolous, and should cause you financial ruin.

How many people would file suit against a major car company for defects in the vehicles that may have killed their loved one knowing that if they lost the case, potentially millions of dollars would be owed by them to the car companies?  Not many, I bet.

But it goes further than that.  Most folks I know don’t have the money to pay an attorney their hourly rate in a personal injury case.  If they are injured, they are probably hard pressed to just pay their bills.  So for that reason, some attorneys will take on cases on a “contingency fee” basis, meaning that if they don’t win and collect, their client owes them nothing.  The attorney’s fee, if any, are taken from the collection alone, so it all depends on the outcome of the case.

You also see this a lot with small businesses.  Many businesses hire attorneys to handle their collections on a contingency fee basis, because they can’t afford to pay the attorney straight time to sue the business that didn’t pay them, especially when there is a chance they may not be able to collect on a judgment if one is taken.

In this proposed legislation, if the attorney has a “financial interest” in the matter (meaning that they have a contingency fee or a fee based on the case’s outcome), then the attorney may also become liable to pay the other side’s fees if they lose.  So what do you think that will do?  If the attorney doesn’t want to expose themselves to liability also, the only way to do that is refuse to handle any matter on a contingency fee basis.

If attorneys stopped handling cases on a contingency fee basis, and would only take straight time payments to handle a lawsuit, then only the very wealthy would be able to afford to bring law suits.  You may have a right to bring a case to trial under the Constitution, but financially would never be able to exercise that right.

The proposed bill takes it even a step farther.  Let’s say that if you win, and the other side loses.  If your attorney is handling the matter on a contingency fee agreement with you, then that fee agreement for legal services may not be considered in the determination of the amount of reasonable and necessary attorney’s fees.  If your attorney can’t get paid, how many cases do you think they can take on?

In personal injury matters, or those arising out of Tort Law, the defendant NEVER has to pay the plaintiff’s (injured party’s) attorney’s fees and costs.  That means that this law will only apply to plaintiffs.  Only you, and not the party that hurt you, will risk financial ruin if you file suit.

Does that really seem fair to you?  Big business and insurance companies may be able to afford it, but can you?

If not, then write your state legislators and state senators.  Tell them that you want to preserve your right to have your day in court that is protected by our Constitution.