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Texas Debt Relief: Your Guide to State Laws and Managing Debt

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When it comes to debt in this country, things vary quite a bit depending on the state in which you live. In this report, we’re taking a look at Texas.

While it’s generally thought that everything in Texas is bigger, that’s not necessarily true when it comes to the size of the debt its residents carry. According to our analysis, the state ranks well in the bottom half of the 50 states for mortgage and student loan debt. The amount of credit card debt Texans carry is a bit higher, putting them in the top 20 among the states. As for auto debt, however, Texans really drive it up, as they hold the most of any state in the country.

In this guide, we take a look at just what that means for the Lone Star State residents who hold debt, tips and tricks to pay it off, and what happens when you’re unable to do so.

Debt in Texas: At a glance

As mentioned above, auto expenses drive more Texans into debt than residents of any other state, with the per capita balance hitting $6,720. They don’t seem to be putting the brakes on that kind of debt either — that figure is up 3.1% from 2017.

Student loan debt is the most rapidly rising source of debt for Texans, however, with a 5.7% increase in the per capita balance between 2017 to 2018. Still, the state ranks relatively low compared to other states’ student loan debt, ranking 34 out of the 50 states.

Texas debt
Type Per capita balance, 2018 Rank out of 50 states* Change from 2017 (%) U.S. per capita balance
Credit card debt $3,270 19 4.1% $3,220
Student loan debt $4,970 34 5.7% $5,390
Auto debt $6,720 1 3.1% $4,700
Mortgage debt** $26,330 30 5.2% $33,680
*No. 1 is the highest
*First-lien debt only
Source: Federal Reserve Bank of New York, March 2019

Debt collection in Texas

Not being able to pay your debt is stressful, but that doesn’t mean you’re entirely at the mercy of your creditors. In Texas (as in most states), when you’re unable to work out a payment plan or other solution with a creditor, your debt is often sold to a collections agency. Collections agencies typically buy that debt at a discounted rate from the creditor, and then it’s up to the agency to get the money you owe from you.

Collections agencies have a history of using ruthless tactics to go about doing so, which is why laws such as the Texas Debt Collection Act have been passed. It states that collectors aren’t allowed to employ a host of intimidating tactics and may face criminal and civil penalties if they do.

Many of the prohibited tactics you would think would be common sense and common courtesy, such as not threatening violence and not using obscene language. However, some consumers may not realize certain actions are prohibited, such as threatening to repossess or seize your property unless they’ve undergone the proper court proceedings, or giving you a false name when contacting you. The Texas Attorney General’s office provides a complete list of prohibited tactics consumers can check if they feel harassed by a collector.

Also, in Texas, unless it’s your mortgage that’s in default, debt collectors can’t go after your home to pay your debt if it has been declared a homestead. They also can’t garnish your wages unless it’s student-loan debt or debt that’s related to back taxes or child support.

If you’re a victim of any of these tactics, you can file a complaint with the American Collectors Association of Texas or call the Texas Attorney General’s Consumer Protection Helpline at 800-621-0508.

In addition to Texas law, the federal Fair Debt Collection Practices Act also prohibits collections agencies from calling your workplace when such calls aren’t allowed and calling you any time before 8 a.m. or after 9 p.m. It also prohibits them from discussing details about your debt with anyone expect you, your spouse and your attorney, if one is involved. To report collections agency violations at a federal level, you can file a complaint with the Federal Trade Commission or the Consumer Financial Protection Bureau.

Responding to collection letters

So, what are collections agencies able to do? Well, they can contact you via telephone, email, text message or mail. If they do, your first step should be to determine if the debt is indeed yours and that they’re not mistakenly contacting you. If there’s a mistake, you should send them a letter disputing it via certified mail. The agency then has 30 days to respond and then cease notifying you if it is, in fact, a mistake.

If the collections notification is legitimate, then it’s up to you to work out a plan with the agency. Oftentimes, they’re willing to settle for less than the full amount you owe, since they bought your debt for less than the full price.

If you want to eliminate notifications in the meantime, you can send the agency a cease-and-desist letter, preferably by certified mail. After that, it can only contact you one more time to tell you what its strategy is to retrieve the funds from you, which could involve a lawsuit in some cases.

Understanding Texas’s statute of limitations

In some cases, you may be tempted to just wait debt out until the statute of limitations passes and the creditor can no longer pursue you for the debts in court.

While it’s true a time-barred debt can’t land you in court, it can take several years before that statute of limitations runs out, which means you run the risk of getting hit with a court summons while you wait out the clock. In addition, you’ll sustain damage to your credit score.

The statute of limitations for various debt is determined separately by each state.

In Texas, the statute of limitations is four years for most debts, except in the case of state tax debt, where it is three years.

Texas Statute of Limitations on Debt
Mortgage debt 4 years
Medical debt 4 years
Credit card 4 years
Auto loan debt 4 years
State tax debt 3 years

Once the statute of limitations expires, your debt is referred to as time-barred debt, and it’s up to you to choose to pay it or not. Note that just because collectors can no longer sue you to collect the debt, it doesn’t mean that they have to stop trying to collect it. As long as they follow proper procedures, they can still try to get the money, so you’re not necessarily freed from them. You may, however, want to consider sending them a cease-and-desist letter.

Once a debt has become time-barred, you might question whether or not it makes sense to pay it off. Technically, you do still owe the debt, even if you can’t be sued for it. The biggest reasons to pay off a time-barred debt might be your sense of personal pride and moral obligation, which are no small things. As for improving your credit score, however, it likely won’t make much of a difference as paid and unpaid collections items are weighed equally by FICO when generating your credit score. In most cases, experts suggest paying off time-barred debt only if you have paid off newer debts and are otherwise financially healthy, since the damage has been done.

If you do choose to pay a time-barred debt, be prepared to pay the entire debt. Even if you pay just $1 or in some cases simply agree to make a payment on an old debt, the statute of limitations for that debt can be reset, and collectors can once again sue you.

Texas debt relief programs

The good news is that there are programs in place to help consumers pay off debt and minimize the damage to their credit as much as possible. For example, Freedom Debt Relief will provide Texans with a free evaluation to determine eligibility for their program. If you qualify, it’’ll help you map out a plan to pay off your debt, typically within two to five years. There are no upfront fees (beware any company that charges them), rather a percentage of your monthly payment goes to them. National Debt Relief is another reputable company that serves Texans, providing credit counseling, debt consolidation and debt settlement services. Customers typically pay off their debt within two to five years, and there are no upfront fees.

To find a debt management and settlement provider to meet your needs, try the National Foundation for Credit Counseling, or peruse this list of national providers at LendingTree. The state of Texas licenses and regulates debt management and settlement providers that do business in the state.

Unfortunately, there are also numerous debt relief scams that target consumers who are desperate to pay off debt. Signs that it may be a scam include the fact that they contact you first (instead of you contacting them) and that they ask for money right away. If you believe you’ve been contacted as part of a scam, you can file a complaint with the State of Texas.

Payday lending laws in Texas

Payday loans come with short terms and sky-high costs. They’re offered online and via storefront lenders and are marketed to consumers who typically have poor credit and are unable to secure other traditional loans. The problem is they come with exorbitant fees and interest rates, which often drag people down further into debt, and, in general, they should be avoided at all costs.

In some states, they’re even illegal, but they’re allowed in Texas, along with 36 other states. Each state that allows them, however, has differing laws regarding them.

The average interest rate for payday loans in Texas sat at 661%, according a 2019 report by the Center for Responsible Lending. That is the highest in the nation.

Tips to tackle debt in Texas

Rather than resorting to a payday loan to pay off debt, there are a variety of other legitimate strategies to help you do so, including the following:

Consolidate your debt

If you have numerous debts, including credit card, medical and personal loan debt, you may want to consider consolidating them into one large debt. Debt consolidation loans allow you to take out one loan in order to pay off other loans and come with fixed rates and fixed repayment terms. Ideally, that loan will come with an interest rate lower than that of your debts, so you’ll save both money and time, since you now have only one debt to manage.

The downside to consolidating debt is that, depending on your credit score and personal financial situation, you may not qualify for a loan with more favorable terms, and/or you may not qualify for one large enough to cover all of your debt. Also, you must be committed to better debt management and refrain from racking up more debt for consolidation to be a successful strategy.


In some cases, you may be able to refinance your mortgage or auto loan in order to get better terms. For example, if you’re able to qualify for a loan with a lower interest rate, you can often save a significant amount of money in interest over time. In some cases, refinancing may result in a lower required monthly payment, which may come as a relief, but dragging out the terms of your loan can mean you’ll pay more interest over time, unless you use that savings wisely.

For example, if your refinance results in a lower monthly bill, but continue to pay a larger payment, you can pay off more of the principal balance, thus saving on interest in the long run. In other cases, it may be advantageous to use the extra money from the lower payment to pay off other higher-interest debt.

Also, in some cases, you must pay closing costs for mortgage refinancing, so you want to make sure refinancing is really the best financial move for you when all things are considered.

Additionally, another option is to refinance your student loan debt. While you can refinance both federal and private student loans through a private lender, it’s important to keep in mind that by doing so with federal loans, you’ll forfeit the chance to participate in repayment plans or forgiveness programs.

Use a balance transfer card

Using a balance transfer card allows you to transfer the balances from higher-interest credit cards over to one card with a lower interest rate. Some even offer 0% introductory APRs, which can save you a significant amount of money if you can pay the debt off during that introductory period, which typically lasts between 12 to 21 months.

On the flip side, however, you might have to pay a balance transfer fee (3 to 5%), so be sure it’s worth it. Paying the card off before that promo period ends should be your goal. If you can’t pay the balance off during the introductory period, you may end up with a higher interest rate and, in some cases, may even be responsible for deferred interest that would have accumulated during that introductory period. Also, not everyone will qualify for a balance-transfer card, as they’re typically only approved for those with good credit.

Home equity loan or home equity line of credit

If you have built up enough equity in your home, you may be able to take out a home equity loan or line of credit to pay off your debt. Of course, you’ll want to make sure the interest rate on it is lower than that of your debt and also have a plan in place to pay it back, since it’s your home that’s at stake.

Filing for bankruptcy in Texas

When all other options are ruled out, some consumers must resort to filing for bankruptcy to rid themselves of debt. There are various different types of bankruptcy, but the primary two for individuals are Chapter 13 and Chapter 7.

Chapter 13 helps consumers set up a plan for paying off debt over a period of time (typically three to five years) and remains on your credit report for seven years after you file for it. Chapter 7, on the other hand, essentially wipes your debt slate clean after your assets are sold or liquidated. A Chapter 7 filing stays on your credit report for up to 10 years.

To determine if you qualify to file for bankruptcy in Texas, you must take the Texas Bankruptcy Means Test. If you determine that you are eligible, you or your attorney will need to file a petition with a Texas Bankruptcy Court. There is a fee of $281 for Chapter 13 filings and a $306 fee for Chapter 7 filings.

For more information on filing bankruptcy in Texas, contact Texas Bankruptcy Law.

The bottom line

No matter where you live, debt can drag you down financially and emotionally. Of course, the best course is not to rack it up in the first place, but if you do, it’s important to know what that means for you and your credit based on where you live and to never just ignore it.

The information in this article is accurate as of the date of publishing. 


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