What Is the Statute of Limitations for Debt Collection in Texas?

Debt papers on desk

Debt is abundant in the United States, particularly among residents in Texas. With over 29 million residents, the state has countless households that have taken on debt to pay off various expenses, including medical bills and personal needs.

When borrowers fail to repay their debts, financial institutions can call in debt collectors to get proper restitution. Texas has fairly lenient laws related to debt collection that limit collectors’ actions. However, that doesn’t mean you should ignore your outstanding debts and hope for the best.

Continue reading to learn about the statute of limitations for debt collection in Texas and other laws around collecting debts.

How Long Before a Debt Becomes Uncollectable?

If you didn’t already know, the statute of limitations refers to the maximum period in which legal action can be taken in a specific situation. Regarding debt collection, the statute of limitations refers to the maximum time debt collectors have to attempt to collect on debts.

Depending on the state, different types of debt may have unique stipulations, and the collection period can kick in at other times. Creditors in Texas must file a debt collection suit within four years to collect a debt from a person.

What Are the Debt Collection Laws in Texas? 

In Texas, there are four state and federal laws that impact how debt collection works. Federal law gives overarching rules about fair business practices and criminal activity regarding loan collection. The state laws mainly protect citizens from being deceived by debt collectors and creditors and also set up general rules for debt collection in Texas.

Texas Deceptive Trades Practices Act

Also called the Texas Debt Collection Act, the Texas Deceptive Trades Practices Act limits debt collectors from taking fraudulent or abusive actions when pursuing a debt.

Common fraudulent actions prohibited by the act:

  • Contacting a consumer with a fake name
  • Lying about the debt value
  • Falsifying court documents
  • Misleading consumers about the activities of a collection agency or creditors

Common abusive actions prohibited by the act:

  • Threatening or using violence to attempt to collect on a debt
  • Making repetitive anonymous calls 
  • Claiming the ability to arrest or repossess without proper court actions
  • Falsely claiming fraud or other crimes

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act is the most expansive federal law related to debt collection in the United States. While it is extensive in the amount of protection it gives debtors, it isn’t overreaching. 

The act ‌sets general ground rules for how collectors and debtors should interact with each other. Many of the items covered also apply to Texas state laws, particularly those related to fair practice, crime, and consumer protection. 

Some of the most notable protections include the following:

  • Prohibiting calls from 9 p.m. to 8 a.m. for most debtors
  • Prohibiting work calls
  • Fraudulent or unethical measures used to collect a debt
  • Safeguards for harassment, abuse, and oppression

Types of Debt That Can Go to Collections 

Creditors can sell most types of outstanding debt to debt collection agencies. The main types of debt include secured, unsecured, and student loans.

Secured Debt

An asset backs secured debt to protect the lender if the borrower defaults on their loan or debt. Secured debts are generally easy to pursue and have the most legal backing because contracts need to be signed to put up collateral. 

Common examples of secured debt:

  • Mortgage loans
  • Car loans
  • Secured credit cards
  • Life insurance loans
  • Secured lines of credit

Unsecured Debt

Unsecured debt contracts have no collateral attached, and the stipulations for collecting a debt from an unsecured debt contract are in the contract. Unsecured debts are typically less valuable than secured debts, so they go to collection agencies less frequently.

If you miss a debt payment for unsecured debt, lenders can take other actions, such as:

  • Increasing interest
  • Charging fees
  • Filing a breach-of-contract lawsuit

Student Loans

Student loans are the second-largest source of consumer debt in the United States, behind mortgages. Many young professionals working in Texas who have recently completed their education may have outstanding student debt. However, federal and state repayment plans ease debt payments over a longer period than other types of debt, so collection agencies rarely collect student debts.

What If the Statute of Limitations Has Passed? 

If the four-year statute of limitations has passed on debt collection, a creditor may not be able to take legal action. However, the statute typically begins on the first default on a payment, rather than when the loan started, which extends the time period for creditors. 

Courts in Texas have taken unique action around debt collection, with past scenarios where creditors have won lawsuits for debt collection despite not filing suit within four years. If an individual chooses not to repay their debt, the court is likely to rule in favor of the creditor. A lender can also continue to attempt to collect on a debt even after the statute of limitations has expired.

How Should Borrowers Pay Off Their Debts?

Borrowers have options for paying off their debts. Some may qualify for deferrals or reduced monthly payments. 

Borrowers should always confirm what they owe and who they owe it to so they can avoid fraudulent practices or scams. They can also explore various repayment methods and strategies.

Need Money Now?

With a better understanding of how debt collection laws work in Texas, you can determine what you need to get out of debt and avoid legal action. One option is to take out an installment loan from Power Finance Texas, using the funds to pay off or pay down outstanding debt and avoid going to collections. Our loans offer flexible terms and quick funding.

Contact us today for more information.