Debtor's Rights

Debtor Protection Laws

There are three basic types of creditors. First are secured debts which have a lien and thus have a charge against a particular piece of property, such as a mortgage or car loan. This property (or proceeds from its sale) must be used to satisfy the debt to the lien-creditor before it can be used to satisfy debts to other creditors. A lien may arise through statute (written law), agreement between the parties, or judicial proceedings, such as a judgment. Secondly, a creditor may have a priority interest. A priority arises through statutory law. If a creditor has a priority their debt must be paid when the debtor becomes insolvent before other debts. For example, Congress has granted priority to debts owed the Federal government. The final type of creditor is a general unsecured creditor who has neither a lien against the debtor's property or is the subject of a statutory priority.

Texas regulates debt collection through statute. The Federal government has enacted the Fair Debt Collection Practices Act to regulate some debt collectors.

Creditors use judicial and statutory processes to have debts satisfied. Attachment is a limited statutory remedy whereby a creditor has the property of a debtor seized to satisfy a debt. Garnishment allows a creditor to collect part of a debt to satisfy the obligation. Replevin allows a creditor to seize goods, such as a security interest, that he or she has a property interest in, to satisfy the debt. Receivership involves the appointing of a third party by a court to dispose of the debtor's property in order to satisfy the debt. Creditors commonly seek to create a lien on a debtor's property through a judicial process of lien creation, which is governed by Texas law. Once a lien has been created Texas statutory law governs how the lien is executed against the debtor's property. The sale of property subject to a lien to satisfy the debt is also governed by Texas statutory law. Federal and Texas statutes, and the Federal Consumer Credit Protection Act also limit the type of property that can be used to satisfy a debt.

If a debtor attempts to fraudulently convey property to avoid having it seized, State law prevents this type of property transfer under the Uniform Fraudulent Transfer Act as adopted by Texas.

Federal Bankruptcy law supersedes state debtor-creditor law where there is a conflict.

A consumer having difficulty paying a debt can contact the creditor before the bill goes to a collector. Sometimes the creditor will refinance or otherwise modify the agreement rather than pay a debt collector. If not, the debtor has certain rights.

If you dispute an item in the file a debt collector has on you, you should give the debt collector written notice. The debt collector must provide you with the necessary forms for the written notice, and must help you fill out the forms if you request it. The debt collector has 30 days after receiving your written request to determine whether or not the disputed item is correct. If it is incorrect, it must be corrected. The debt collector must notify anyone who has already received a report containing the incorrect item. If, at the end of 30 days, the debt collector has not been able to determine whether the item is correct or not, he or she must make the change you requested and notify anyone who received a report containing the incorrect item. If it is later determined that the item was correct after all, you must be notified and collection efforts may be continued.

It is unlawful for a debt collector to attempt to collect more than the amount originally agreed upon – whether the agreement was in writing or not. However, the debt may be increased by the addition of attorney's fees, investigation fees, service fees, collection fees, or other charges if a written contract authorizes the additional charges.

State law prohibits the use of harassment and abusive collection tactics. It is illegal for any debt collector to:

• threaten violence or other criminal acts;
  
• use profane or obscene language;
  
• falsely accuse the consumer of fraud or other crimes; threaten arrest of the consumer, or repossession or other seizure of property without proper court proceedings;
  
• use the telephone to harass debtors by calling anonymously or making repeated or continuous calls;
  
• make collect telephone calls without disclosing the true name of the caller before the charges are accepted. child support, IRS taxes, and certain student loans.

Violators of the Texas Debt Collection Act are subject to criminal and civil penalties. Consumers who have been harassed or deceived may seek injunctions and damages against debt collectors.

These actions are also violations of the Texas Deceptive Trade Practices/ Consumer Protection Act which gives the Texas Attorney General the authority to take action in the public interest.

Regulation Of Collection Agencies

Texas statutes cover actions by anyone trying to collect a consumer debt. The federal law—the Fair Debt Collection Practices Act—applies only to collectors working for professional debt collection agencies and attorneys hired to collect a debt.

It is similar to Texas law, but also prohibits:

• calls at work if the collector has reason to know the employer does not permit such calls;
• calls before 8 a.m. or after 9 p.m. unless the collector knows such times are more convenient
• "unfair or unconscionable means to collect or attempt to collect a debt;"
• any conduct to harass, oppress, or abuse.

If you are being subjected to harassing, abusive, or fraudulent debt collection tactics by professional debt collectors, and you want to stop further contact with you, notify the collector in writing. Keep a copy of your letter and send the original to the debt collector by certified mail.

Marital Debt

Due to the fact that Texas is a community property state and that property of a married couple is classified as either community or separate property, questions arise as to what property is subject to seizure or execution by creditors. This material assumes that the property is not exempt under Texas law. The following is general information as to how Texas handles the claims of creditors:

Separate Property Liability: A married person's separate property is not subject to the liabilities of his or her spouse unless both spouses are liable for the debt.

However, a spouse's separate property is liable if the spouse incurs a debt for necessaries. A spouse's separate property may be liable if the spouse acts as an agent for the other spouse.

Sole Management Community Property Liability: Each spouse's share of joint management community property is subject to liabilities incurred by him or her before and during marriage. A spouse's separate and sole management community property cannot be reached to satisfy the obligation incurred by the other spouse unless that obligation was incurred for necessaries or by the torturous conduct of the other spouse.

Joint Management Community Property: Each spouse's share of joint management community property is subject to liabilities incurred by him/her before and during the marriage.

Character of Contractual Obligation: The character of debt is fixed by the character of the contractual obligation with the creditor. When either spouse incurs an indebtedness during marriage and the person extending credit does not specifically agree to look solely to the separate estate of one of the spouses for satisfaction, the borrowing spouse pledges community credit and whatever is acquired as a result is community property.

Bankruptcy - Your Options

Bankruptcy law is federal statutory law contained in Chapter 11 of the United States Code. Article I of the United States Constitution granted the U S Congress the right to pass Bankruptcy laws which are contained in the Bankruptcy Code. Texas is not allowed to regulate bankruptcy law. However, Federal law does allow States to determine what property is exempt. Texas exemptions allows a generous number of assets which are exempt from action against unsecured creditors.

There are two basic types of Bankruptcy proceedings. Chapter 7 is a liquidation of debts. In a liquidation the debtor(s) give up any nonexempt assets in exchange for eliminating most types of debts. The other type of bankruptcy proceeding is found under Chapters 11, 12, and 13 which are reorganizations. One of the advantages to a reorganization plan is that the debtor(s) may keep even nonexempt assets so long as unsecured creditors are paid the amount they would have received under a Chapter 7 proceeding .

Under the Bankruptcy Reform Act of 2005, effective October 17, 2005 BEFORE you can file you MUST receive an individual or group “briefing” (in person, by telephone, or on the internet) from a credit counseling agency APPROVED by the Bankruptcy Court. Our Law Firm can assist you with this procedure in our office as we have set up accounts with various APPROVED agencies. In most cases this can be done in about 30 minutes. After you file you MUST complete a Financial Management Course intended to help Debtors identify and correct the financial mistakes that led to bankruptcy.

The new law is so complex (especially the Means Test) that you should hire an experienced, QUALIFIED, bankruptcy attorney.