If you're a Texas business owner owed money, understanding your legal rights is critical. Texas law provides powerful tools for creditors — but only if you know how to use them (and use them within strict time limits).
This guide covers everything you need to know about collecting commercial debts in Texas in 2026: statutes of limitations, interest rates, legal remedies, and how to stay compliant with federal and state law.
Quick Reference: Texas Debt Collection Laws
| Topic | Texas Law |
|---|---|
| Statute of Limitations (Written Contract) | 4 years |
| Statute of Limitations (Oral Contract) | 4 years |
| Statute of Limitations (Open Account) | 4 years |
| Legal Interest Rate | 6% per year (if no contract rate) |
| Contract Interest Rate (Max) | 18% per year (consumer), no limit (commercial) |
| Late Fees | Reasonable and stated in contract |
| Judgment Interest Rate | 5% per year (post-judgment) |
| Wage Garnishment | Allowed (federal limits apply) |
| Bank Account Levy | Allowed (with judgment) |
| Property Lien | Allowed (with judgment) |
| Mechanic's Lien | Allowed (construction/contractors, strict deadlines) |
Statute of Limitations: The Most Important Deadline
Texas statute of limitations for commercial debt: 4 years (Texas Civil Practice and Remedies Code § 16.004)
What This Means
You have 4 years from the date of default to file a lawsuit to collect the debt. After 4 years, the debt becomes legally "time-barred" — you can still ask for payment, but you cannot sue to collect it.
When the Clock Starts
For written contracts: Date of breach (typically the due date on the invoice)
Example:
- Invoice dated January 1, 2022, due Net 30 (February 1, 2022)
- Debtor doesn't pay
- Statute of limitations expires: February 1, 2026
For open accounts (ongoing business relationship):
- Clock starts from the last charge or payment
- Every new invoice or payment resets the clock
Example:
- Last invoice: June 1, 2022
- Last payment: August 1, 2022
- Statute expires: August 1, 2026
Can the Statute Be Extended?
Yes, in limited circumstances:
- Debtor acknowledges the debt in writing (resets the clock)
- Debtor makes a partial payment (resets the clock)
- Debtor signs a written agreement to pay (resets the clock)
No:
- Verbal promises don't reset the clock
- Leaving voicemails doesn't reset the clock
- Sending demand letters doesn't reset the clock
Interest Rates: What You Can Charge
Pre-Judgment Interest (Before You Sue)
If you have a written contract stating interest rate:
- Commercial debts: No limit (charge whatever you agreed to)
- Consumer debts: 18% per year maximum
If you DON'T have a written contract:
- Default rate: 6% per year (Texas Finance Code § 302.002)
Post-Judgment Interest (After You Win in Court)
Once you have a judgment:
- Post-judgment rate: 5% per year (Texas Finance Code § 304.003)
- Calculated from date of judgment until paid in full
Late Fees
Texas law allows late fees if:
- Stated in your contract or invoice terms
- Reasonably related to actual damages
- Not unconscionable (excessively high)
Common late fee structures:
- 1.5% per month (18% APR) — standard
- $25-50 flat fee per late payment
- $X per day after 30 days overdue
Best practice: Clearly state late fees in your contract/invoice terms before work begins.
Legal Remedies: How to Collect in Texas
Texas law provides multiple tools to collect commercial debts:
1. Demand Letter
What it is: Formal written notice demanding payment
Requirements:
- State amount owed
- Provide deadline for payment (10-30 days typical)
- Outline consequences of non-payment
When to use: Always the first step (creates legal record)
Cost: $0-$500 (if attorney-drafted)
2. Small Claims Court
What it is: Simplified court process for small debts
Limits:
- Justice Court: Up to $20,000
- Small Claims: Up to $20,000 (simplified process)
Process:
- File claim with county justice court
- Pay filing fee ($45-$300 depending on amount)
- Serve debtor with citation
- Court hearing (usually 30-60 days)
- Judgment entered if you win
Pros: No attorney required, fast (30-90 days), low cost
Cons: You must enforce the judgment yourself (garnishment, levy, lien)
3. Civil Lawsuit (District Court)
What it is: Formal lawsuit for larger debts
When to use: Debts over $20,000
Process:
- Attorney files petition
- Discovery (exchange of evidence)
- Mediation or trial
- Judgment entered
Timeline: 6-18 months
Cost: $5,000-$25,000 in attorney fees (unless you win and they pay)
Advantage: Attorney handles everything, can recover attorney fees if contract allows
4. Wage Garnishment
What it is: Court-ordered deduction from debtor's paycheck
Texas law:
- Allowed with court judgment
- Federal limits apply (25% of disposable income or amount above 30× federal minimum wage)
- Employer must comply or face contempt
Process:
- Obtain judgment
- File writ of garnishment with court
- Serve employer
- Employer withholds from paycheck and sends to you
Limitations:
- Only works if debtor is employed
- Self-employed debtors can't be wage garnished
- Some income is exempt (Social Security, disability)
5. Bank Account Levy
What it is: Seizing funds from debtor's bank account
Process:
- Obtain judgment
- Locate debtor's bank account (skip tracing)
- File writ of execution
- Constable serves bank with writ
- Bank freezes account and turns funds over to you
Limitations:
- Must know which bank they use
- Some funds are exempt (Social Security, child support)
- Works only once (they'll close account after)
6. Property Lien (Abstract of Judgment)
What it is: Legal claim against debtor's real property
Process:
- Obtain judgment
- File Abstract of Judgment with county clerk
- Lien attaches to any real property debtor owns in that county
Effect:
- Debtor can't sell or refinance property without paying your judgment
- Lien lasts 10 years (can be renewed)
- Forced sale (rare, requires separate foreclosure action)
Best for: Debtors who own property but claim they "can't pay"
7. Mechanic's Lien (Construction/Contractors)
What it is: Special lien for construction work or materials
Who can file:
- Contractors
- Subcontractors
- Material suppliers
- Laborers
Timeline (CRITICAL):
- Residential: File within 4 months of work completion or last delivery
- Commercial: File on 15th day of 3rd month after work completion
Effect:
- Creates lien on property where work was performed
- Property cannot be sold/refinanced until lien paid
- Can foreclose on lien (forced sale of property)
Warning: Mechanic's liens have strict deadlines and notice requirements. Miss the deadline = lose your right to file.
Best practice: Hire an attorney experienced in mechanic's liens.
FDCPA Compliance: Don't Violate Federal Law
The Fair Debt Collection Practices Act (FDCPA) is a federal law regulating debt collection. While it primarily applies to consumer debt, many provisions apply to commercial debt as well.
What You CAN Do
✅ Contact the debtor by phone, email, or mail ✅ Send demand letters ✅ Report the debt to business credit bureaus ✅ File a lawsuit ✅ Hire a collection agency ✅ Contact the debtor at their place of business ✅ Speak to their attorney (if they have one)
What You CANNOT Do
❌ Harass, threaten, or abuse the debtor ❌ Call before 8 AM or after 9 PM (their time zone) ❌ Call repeatedly with intent to annoy ❌ Use obscene language ❌ Threaten violence or harm ❌ Falsely claim to be an attorney or law enforcement ❌ Threaten arrest or jail time (you can't be jailed for debt) ❌ Publish a "deadbeat list" ❌ Contact third parties about the debt (except to locate debtor) ❌ Continue contact after written cease-and-desist request
Gray Area: What's Risky
⚠️ Contacting employer: Generally avoid unless locating debtor ⚠️ Leaving detailed voicemails: Don't disclose debt to third parties ⚠️ Social media contact: Risky (public disclosure, harassment claims) ⚠️ Showing up at their home: Legal but risky (trespassing claims)
Best practice: Hire a professional collection agency who knows FDCPA compliance inside and out.
Personal Guarantees: Your Secret Weapon
Many business debts involve a personal guarantee — where the business owner personally guarantees payment if the company doesn't pay.
Why Personal Guarantees Matter
Without personal guarantee:
- You can only collect from the business
- If the business closes or dissolves, you're out of luck
- Owner can walk away with zero personal liability
With personal guarantee:
- You can collect from the business AND the owner personally
- Owner's personal assets (house, car, bank accounts) are at risk
- Owner cannot escape liability by closing the business
How to Enforce Personal Guarantees
- Sue both the business and the guarantor
- Obtain judgment against both
- Pursue guarantor's personal assets:
- Wage garnishment (if employed)
- Bank account levy
- Property lien (on personal residence)
- Asset seizure
Pro tip: Many debtors "forget" they signed a personal guarantee. Reminding them of this usually results in faster payment.
When Assets Disappear: Fraudulent Transfers
The scenario: Debtor transfers assets (property, vehicles, business) to family members or new LLCs to avoid paying you.
Texas law: Fraudulent transfers can be reversed (Texas Business & Commerce Code Chapter 24)
What Qualifies as Fraudulent Transfer
A transfer is fraudulent if:
- Made with intent to defraud creditors
- Debtor received less than fair value
- Debtor was insolvent (or became insolvent) because of the transfer
Signs of Fraudulent Transfer
- Transferring property to spouse/family member for $1
- Creating a new LLC and transferring business assets to it
- Selling vehicles for far below market value
- Transferring assets after being sued (or when lawsuit is imminent)
How to Recover
- File a fraudulent transfer lawsuit
- Court can reverse the transfer
- Assets return to debtor's ownership
- You can levy/garnish those assets
Warning: Fraudulent transfer cases are complex. Hire an attorney experienced in this area.
Bankruptcy: The Debtor's Nuclear Option
If your debtor files bankruptcy, collection efforts must stop immediately.
What Happens
Automatic stay: All collection activities freeze Creditor's meeting: You file a proof of claim Distribution: You may receive pennies on the dollar Discharge: Remaining debt may be wiped out
Your Options
Secured debt (lien on property): You're in better position Unsecured debt (no collateral): You're at the back of the line
Best move: File your claim immediately (deadline is typically 90 days)
Reality: Bankruptcy often means you won't collect much (or anything)
Practical Tips for Texas Businesses
1. Act Fast
The first 90 days are critical. After that, recovery rates plummet.
2. Document Everything
- Keep all invoices, contracts, purchase orders
- Save emails, text messages, call logs
- Document every collection attempt
- Take screenshots of websites (if debtor closes business)
3. Know Your Deadlines
- 4-year statute of limitations
- Mechanic's lien deadlines (3-4 months)
- Bankruptcy claim deadlines (90 days)
4. Use Written Contracts
- Include personal guarantees (for LLCs/Corps)
- State interest rate and late fees
- Include attorney fee provision ("prevailing party recovers attorney fees")
- State jurisdiction (Texas courts)
5. Hire Professionals When Needed
- Collection agencies (after 60-90 days of non-payment)
- Attorneys (for litigation, mechanic's liens, fraudulent transfers)
Texas-Specific Quirks & Advantages
Advantages for Creditors
✅ No cap on commercial interest rates (charge whatever you agreed to) ✅ Strong mechanic's lien laws (contractors have powerful remedies) ✅ Expedited foreclosure process (faster than many states) ✅ Wage garnishment allowed (some states don't allow this) ✅ Abstract of judgment system (easy to place liens on property)
Disadvantages for Creditors
❌ 4-year statute of limitations (shorter than some states) ❌ Homestead exemption (can't force sale of primary residence in most cases) ❌ Vehicle exemption ($0 for luxury vehicles, but $20,000 equity protection for work vehicles) ❌ Personal property exemptions (some assets protected from seizure)
When to Hire a Collection Agency
Hire a Texas collection agency when:
- Debt is 60+ days past due
- Debtor is unresponsive
- You need skip tracing or asset discovery
- You want in-person engagement (show up at their office)
- You need legal leverage (lawsuits, liens, garnishments)
What Texas agencies can do:
- File lawsuits in Texas courts
- Obtain judgments
- Enforce judgments (wage garnishment, bank levy, property lien)
- File mechanic's liens (if experienced in construction debt)
- Pursue fraudulent transfer claims
Alexander Strauss & Associates: Texas Commercial Debt Collection
We specialize in Texas commercial debt collection:
- Licensed and bonded in Texas
- 25+ years of experience
- Attorneys on staff for litigation
- In-person engagement (Dallas-based, statewide service)
- Mechanic's lien filing
- Judgment enforcement
- Skip tracing and asset discovery
We've recovered over $100M for Texas businesses.
No obligation. No upfront cost. We only get paid when you get paid.
FAQs: Texas Debt Collection Law
Q: Can I sue a debtor in Texas if they're located in another state? A: Maybe. Depends on where the contract was signed and where services were performed. Consult an attorney.
Q: What if the debtor is an LLC and has no assets? A: This is why personal guarantees matter. Without one, the LLC's lack of assets means you likely can't collect.
Q: Can I repossess equipment or goods I sold them if they don't pay? A: Only if you filed a UCC-1 financing statement (creating a security interest). Otherwise, no.
Q: How do I find out if they own property in Texas? A: Search county property records online. Most Texas counties have online property tax records.
Q: Can I force them to sell their house to pay me? A: Rarely. Texas has a strong homestead exemption. You can place a lien, but forcing a sale is difficult.
Q: What if they move out of state? A: You can domesticate your Texas judgment in the new state and enforce it there.
Texas law favors creditors who act quickly and know their rights. Don't wait until it's too late.
Contact us today for a free case evaluation →
General information for commercial creditors, not legal advice. Laws and deadlines change and depend on the facts — confirm specifics with qualified counsel.