Texas Debt Collection Laws & Compliance Guide

Texas is widely regarded as one of the most debtor-friendly states in the nation, with strong property exemptions and a near-complete prohibition on wage garnishment for consumer debts. The Texas Debt Collection Act (TDCA) governs collection practices, while the Texas Finance Code and Texas Property Code provide extensive debtor protections.

At Midwest Service Bureau, we navigate Texas's unique regulatory landscape to ensure compliant, effective debt recovery. This guide covers the critical compliance requirements for debt collection in the Lone Star State.

Licensing Requirements in Texas

Texas takes a registration-based approach to debt collection licensing rather than a traditional license system:

• Surety bond: Third-party debt collectors must file a $10,000 surety bond with the Texas Secretary of State
• Registration: Agencies must register with the Texas Secretary of State and file notification with the Texas Office of Consumer Credit Commissioner (OCCC)
• No separate state license: Texas does not require a standalone collection agency license, but the bond and registration requirements are mandatory
• Out-of-state agencies: Must comply with the same bonding and registration requirements if collecting debts from Texas residents

The OCCC has regulatory oversight and can investigate complaints against debt collectors. Failure to maintain the required bond can result in the inability to bring or maintain a legal action in Texas courts to collect a debt.

Texas also requires collectors to include specific disclosures in written communications, including the name and address of the original creditor if different from the current holder of the debt.

Statute of Limitations on Debt

Texas applies a uniform 4-year statute of limitations to most debt categories, making it simpler than many states:

• Written contracts: 4 years (CPRC § 16.004)
• Oral contracts: 4 years (CPRC § 16.004)
• Promissory notes: 4 years (Business & Commerce Code § 3.118 for negotiable instruments — 6 years)
• Open accounts (credit cards): 4 years (CPRC § 16.004)
• Domestic judgments: 10 years, renewable

The statute begins running from the date of default or the last activity on the account. In Texas, a partial payment or written acknowledgment can restart the statute of limitations, though courts have applied this doctrine inconsistently. Collectors should exercise caution and clearly document the timing of any payments.

Filing suit on a time-barred debt violates both the TDCA and the FDCPA. Texas courts have been particularly strict about this, awarding significant damages to consumers in cases where collectors knowingly sued on expired debts.

Prohibited Practices Under Texas Law

The Texas Debt Collection Act (Finance Code Chapter 392) prohibits the following practices:

• Threats and coercion: Using threats of violence, criminal prosecution, or seizure of property without legal authority. Texas specifically prohibits threatening to file criminal charges as a collection tactic
• Harassment: Repeated phone calls intended to harass, using profane or obscene language, or calling before 8:00 a.m. or after 9:00 p.m.
• Unfair practices: Collecting unauthorized fees or charges, misrepresenting the character or amount of the debt, or soliciting post-dated checks for the purpose of threatening criminal prosecution
• Misrepresentation: Falsely representing the status of legal proceedings, using a business name that implies government affiliation, or misrepresenting the collector's identity or authority
• Fraudulent or deceptive practices: Making false claims about the consequences of nonpayment, using simulated legal process documents, or communicating with a consumer in a misleading manner

The TDCA provides for both injunctive relief and monetary damages. Consumers can recover actual damages sustained, plus additional penalties. The Texas Attorney General also has authority to bring enforcement actions, with civil penalties up to $2,000 per violation ($10,000 for violations against elderly consumers).

Key Texas Statutes for Debt Collection

• Texas Debt Collection Act (TDCA): Finance Code Chapter 392 — primary state collection practices law
• Texas Deceptive Trade Practices Act (DTPA): Business & Commerce Code Chapter 17 — provides additional consumer remedies, including treble damages for knowing violations
• Texas Property Code: Chapter 41 (Homestead) and Chapter 42 (Personal Property Exemptions) — define assets protected from collection
• Turnover statutes: CPRC § 31.002 — governs post-judgment collection through turnover orders
• Statute of limitations: CPRC § 16.004 — 4-year limitation period for debt actions

Wage Garnishment in Texas — The Exception

Texas stands apart from virtually every other state in its treatment of wage garnishment. Texas law prohibits wage garnishment for most consumer debts. The Texas Constitution (Article XVI, § 28) protects current wages from garnishment.

The only exceptions to this prohibition are:

• Court-ordered child support or spousal maintenance
• Federal student loan debts
• Tax debts owed to the IRS or Texas Comptroller

However, once wages are deposited into a bank account, they may lose their exempt status after a period of time. Creditors can pursue bank account levies through turnover orders under CPRC § 31.002, though courts typically protect wages that are clearly identifiable as recently deposited.

Property Exemptions in Texas

Texas offers some of the strongest property exemptions in the nation:

• Homestead: Unlimited value, up to 10 acres (urban) or 100 acres for single / 200 acres for family (rural)
• Personal property: Up to $100,000 for families ($50,000 for individuals), including vehicles, home furnishings, food, clothing, tools of trade, and athletic/sporting equipment
• Retirement accounts: IRAs, 401(k)s, and other qualified retirement plans are fully exempt
• Insurance proceeds: Life insurance and annuity proceeds are generally exempt
• Wages: Current wages are exempt from garnishment (as noted above)

Compliance Best Practices for Texas Collections

• Maintain current surety bond and Secretary of State registration
• Never threaten wage garnishment for consumer debts — it's not available in Texas
• Track the 4-year statute of limitations carefully and never sue on time-barred debts
• Be aware of Texas's strong homestead protections when evaluating collection strategies
• Consider bank levies through turnover orders as an alternative to garnishment
• Provide all TDCA-required disclosures in initial communications

For professional, compliant debt collection services in Texas, learn more about our Texas debt collection services or call us at (800) 362-0272.