Waldron & Schneider, LLP : Attorneys at Law

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Q: How much interest can I charge on an unpaid account?

A. Texas law limits the amount of interest that can be charged. Go over that limit and you will be penalized. If you exceed twice the legal limit, you will end up paying them! Currently, the maximum rate for written contracts is 18%. If you do not have a written contract, the maximum rate on open accounts is 6%. This is one of the reasons we recommend a written credit agreement for all open accounts. The agreement can provide for interest higher than 6%. We can tailor an agreement to fit your needs.

Q: If we sue to collect a debt, can I recover my attorneys’ fees?

A. Yes. Chapter 38 of the Texas Civil Practice and Remedies Code permits the recovery of attorneys’ fees in a suit on an account, provided you make a written demand for payment 30 before judgment. You can also add an attorneys’ fees clause to your written credit agreement, which is another reason we recommend such a contract.

Q: The company that owes me money is out of business. Can I sue the owner?

A: Normally, no. By law, owners of corporations, limited partnerships and limited liability companies are not responsible for the company’s debt. However, you can create an individual guarantee of a company’s debt by written agreement dated before the debt was incurred. This is yet another reason to have a written credit agreement. Also, if the owner sold off the assets of the company and put the money in his own pocket, you may have a claim against him individually.

Q: How much can I sue for on an unpaid debt?

A: On an open account or other commercial debt, including unpaid rent, you can sue for the principal amount owed, lawful interest, court costs and attorneys’ fees. You cannot sue for punitive damages in most cases, unless there is actual fraud or intentional misconduct. The mere fact that they did not pay you is not by itself grounds for punitive damages. You also cannot recover for your time and trouble in bringing suit or for any lost business.

Q: Are there any risks in bringing suit?

A: Yes. Your customer can bring a counter claim for any damages they claim to have suffered. They could contend that you breached a warranty as to any goods or services you sold them. They can also counter sue for any other matter that may have existed between you. Sometimes debtors will bring counter claims as a ploy to delay the suit or to force you to settle. If the debtor wins on their counter claim, you could end up with a judgment against you. If you think that the debtor may have any grounds to sue you back, no matter how false or weak, make sure you tell your attorney all the details before you file suit. Only by knowing all the facts can your attorney advise you of the risks and costs of filing suit.

Q: What do I do with a judgment if I win?

A: A judgment is no guarantee of payment. If the debtor is insolvent, there is no money to pay a judgment. However, there are many things we can do to collect on a judgment. We can have the constable seize and sell any non-exempt assets. We can place a lien on non-exempt real estate. Bank and other accounts can be garnished. We can have the debtor ordered to turn over any hard to reach assets, such as stocks or bonds. We can also ask the Court to appoint a receiver over the debtor and his assets. We can also force the debtor to answer questions about his assets. If the debtor transfers assets to other people, we can go after those people to reverse the transfer. There are many things we can do, but, at the end of the day, if the debtor is truly broke there is little we can do. In some cases it is not worth pursuing an insolvent debtor. On the other hand, judgments in Texas are good for ten years and can be renewed for a further ten years after that. Many is the case where an insolvent debtor regains the ability to pay after a few years have passed.

Q: What can I do to increase my chances of collection?

A: The best things to do are done before the account is past due. Set up all customers with written credit agreements. This agreement can provide for individual guarantees, higher interest rates, attorneys’ fees, recovery of lawsuit expenses, and, if permitted by law, limitations of your liabilities to your customers. As part of this agreement, you can require a prospective customer to list their assets. You can also check their credit worthiness before you sell them anything on credit. You can also gather information that may make collection more likely in the future. For example, by requiring the debtor to list bank references, you will have some idea of where they bank, which may enable you to garnish their bank account if you get a judgment. In some cases, you may also be able to file a UCC (Uniform Commercial Code) lien on the goods you supply to the debtor. Set up a system with your lawyer before you extend credit.

15150 Middlebrook Drive     Houston, TX 77058     281.488.4438
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