Defending Against a Collection Action: What to Do When Your Business Is the Debtor

By Hank FasthoffJuly 6, 2026

Not every collection claim is valid. Creditors file suit on debts that have been paid, on amounts that include unauthorized charges, on contracts the debtor has defenses to, and sometimes on debts the creditor doesn't even own. A business that receives a demand letter or a collection lawsuit shouldn't assume the claim is correct and write a check. It should evaluate the claim, identify available defenses, and determine whether contesting the action (or negotiating from a position of knowledge) produces a better outcome than paying the full amount demanded.

This article addresses commercial (business-to-business) collection defense, not consumer debt defense. While some principles overlap, the statutory protections available to consumers under the Fair Debt Collection Practices Act and the Texas Debt Collection Act don't apply to most business debts, and the strategies for defending a commercial collection differ from consumer debt defense.

Step One. Answer the Lawsuit

If your business is served with a collection lawsuit, the single most important step is filing an answer before the deadline. In Texas district and county courts, the answer is generally due by 10:00 a.m. on the first Monday after 20 days from the date of service. Missing the deadline produces a default judgment, which provides the creditor everything it asked for without the debtor ever being heard.

A default judgment in a commercial collection case can be enforced through writs of execution, bank account garnishment, turnover orders, and judgment liens on the debtor's real property. Once a default judgment is entered, setting it aside requires a motion for new trial or a bill of review, both of which have strict requirements and limited timelines.

Filing an answer preserves every defense. Even if the debtor believes the claim is partially valid, filing an answer and contesting the claim forces the creditor to prove its case, creates the opportunity to negotiate a settlement from a position of engagement rather than default, and preserves the debtor's right to assert counterclaims.

Step Two. Evaluate the Claim

Before deciding how to respond on the merits, evaluate the creditor's claim against the debtor's records.

Is the debt valid? Compare the creditor's petition to the debtor's records. Was there a contract? Were the goods delivered or the services rendered? Does the debtor's account show an unpaid balance? If the debtor has records showing the debt was paid, was offset by credits, or was satisfied through a prior agreement, the claim may be invalid.

Is the amount correct? Creditors sometimes add unauthorized late fees, inflate interest calculations, include amounts for goods that were returned or services that were rejected, or fail to credit payments the debtor made. Comparing the creditor's claimed balance to the debtor's records invoice by invoice can identify discrepancies that reduce or eliminate the claim.

Does the creditor have standing? If the claim was assigned or sold by the original creditor to a debt buyer or collection agency, the plaintiff must prove it owns the debt through a valid chain of assignment. In commercial collections, standing issues arise when the assignment documentation is incomplete, when the amount claimed doesn't match the assignment, or when the assignee can't produce the underlying contract.

Step Three. Assert Defenses

Statute of limitations. Under CPRC § 16.004, breach of contract and debt collection actions must be filed within four years from the date the cause of action accrues. For debts payable in installments, each missed payment triggers its own four-year period unless the creditor accelerated the full balance. If the creditor waited more than four years after the last missed payment (or after acceleration) to file suit, the claim is time-barred. Limitations is an affirmative defense that must be raised in the answer; the court won't apply it automatically.

Prior material breach. If the creditor failed to perform its own obligations under the contract before the debtor's payment became due, the creditor's prior breach may excuse the debtor's non-payment. A vendor who delivered defective goods, failed to complete the contracted services, or breached a warranty can't collect the full contract price from a buyer who withheld payment because of the vendor's performance failure.

Accord and satisfaction. If the parties agreed to resolve the debt for a different amount or through different performance, and that substitute performance was rendered, the original obligation is discharged. A debtor who can prove the parties agreed to settle for $60,000 and the debtor paid $60,000 has an accord and satisfaction defense to a subsequent claim for the remaining $40,000.

Failure of consideration. If the creditor never delivered the goods, never rendered the services, or the consideration underlying the contract was never provided, the debtor may have a failure of consideration defense.

Payment. If the debt was paid (in whole or in part) and the creditor isn't crediting the payments, the debtor can assert payment as a defense and produce records showing the payments were made.

Offset and counterclaim. If the creditor owes the debtor money on a related or unrelated transaction, the debtor can assert the creditor's obligation as an offset against the creditor's claim. If the amount owed by the creditor exceeds the creditor's claim, the debtor can file a counterclaim for the difference.

Contesting a Sworn Account

If the creditor filed suit on a sworn account under TRCP Rule 185, the debtor must file a verified denial under oath before announcing ready for trial. A general denial won't defeat the sworn account. The sworn denial must state that the claim is "not just or true, in whole or in part," and if the denial is partial, the debtor must identify the specific items and amounts that are contested.

Filing a proper sworn denial strips the creditor of the prima facie evidence advantage that Rule 185 provides. Without the sworn denial, the creditor's verified account is taken as established, and the debtor can't dispute the individual charges. With the sworn denial, the creditor must prove each element of the claim through evidence, just as in a standard breach of contract action.

If the creditor's petition wasn't properly verified or the account isn't properly itemized (no systematic record, no affidavit with the required "just and true" language, no disclosure of offsets), the petition doesn't comply with Rule 185, and the debtor can file a general denial without a sworn denial. A deficient sworn account petition doesn't create prima facie evidence regardless of whether the debtor files a sworn denial.

Dissolving Prejudgment Remedies

If the creditor obtained a prejudgment writ of attachment, garnishment, or sequestration, the debtor can challenge the writ by filing a motion to dissolve. Grounds for dissolution include the creditor's affidavit didn't establish the statutory requirements for the remedy (the creditor didn't demonstrate that the debtor was about to dispose of or remove property, or that the debtor doesn't possess sufficient property subject to execution), the creditor's bond is insufficient to protect the debtor from damages if the writ is wrongfully issued, the writ was improperly served or doesn't comply with procedural requirements, or the underlying claim doesn't support the remedy (for example, prejudgment garnishment requires a liquidated debt, and if the claim is for unliquidated damages, garnishment isn't available).

If the writ is dissolved, the debtor can recover possession of seized property or release of frozen funds. If the writ was wrongfully issued and the debtor suffered damages (lost business because the operating account was frozen, lost customers because inventory was seized, reputational harm from the seizure), the debtor can pursue damages under the creditor's bond and may have a separate claim for wrongful attachment.

A debtor can also recover seized property by posting a replevy bond (a counter-bond in an amount sufficient to cover the creditor's claim), which releases the property while the underlying case proceeds.

When Collection Tactics Cross the Line

In business-to-business collections, the creditor has broad latitude to pursue aggressive collection tactics. But some conduct crosses from aggressive into unlawful.

Abuse of process occurs when the creditor uses the legal system for a purpose other than obtaining a judgment on a legitimate debt (filing suit solely to harass, obtaining prejudgment remedies without a good-faith basis for the statutory grounds, using discovery as a pressure tactic rather than a fact-finding tool).

Malicious prosecution arises when the creditor files a collection lawsuit without probable cause (the creditor knows the debt isn't owed or the claim is legally deficient) and the lawsuit is terminated in the debtor's favor.

Wrongful attachment, garnishment, or sequestration produces liability under the creditor's bond and may support a separate tort claim if the seizure was obtained without a good-faith basis for the statutory requirements.

For consumer debts (debts incurred for personal, family, or household purposes), the Texas Debt Collection Act (Texas Finance Code Chapter 392) prohibits threatening violence, using profane or obscene language, making false representations about the character or amount of the debt, threatening legal action the collector doesn't intend to take, and communicating with the consumer at unreasonable times or places. Violations of the TDCA can produce damages, attorney's fees, and injunctive relief.

Practical Recommendations

File an answer before the deadline. Everything else is secondary to this. A default judgment eliminates every defense, every counterclaim, and every negotiating position the debtor has. Even if the debtor intends to negotiate a settlement, filing an answer preserves negotiating power and prevents the creditor from obtaining a judgment by default.

Compare the creditor's claimed amount to your records. Errors in the creditor's calculation (unauthorized fees, uncredited payments, inflated interest) are common, and identifying them reduces the claim and strengthens the debtor's negotiating position.

If the creditor filed a sworn account, file a sworn denial immediately. Failing to file the verified denial is one of the most costly procedural errors in Texas collection defense. Without the sworn denial, the debtor can't contest the individual charges, and the creditor's account stands as proven.

Evaluate counterclaims. If the creditor owes the debtor money, or if the creditor's collection conduct was unlawful, the debtor may have claims that exceed the creditor's claim. A counterclaim transforms the debtor from a defendant into a plaintiff, which changes the settlement dynamics.

Don't ignore the lawsuit and hope it goes away. It won't. A creditor who files suit has invested attorney's fees and court costs, and it will pursue the case to default judgment if the debtor doesn't respond. Responding costs less than unwinding a default judgment, and it puts the debtor in a position to negotiate, defend, or settle on terms that reflect the actual merits of the claim.