Business Debt Restructuring in Texas: 7 Laws That Change Your Leverage (2026)

Why the Statute Book Moved Under Your Funder’s Feet

For years the honest answer to a Texas business owner asking about advance debt was that Texas had almost nothing to say about it. The state had a usury chapter that commercial lenders routed around, a homestead exemption that protected your house and nothing your company owned, and no regulator that cared what a funder put in a contract. That answer stopped being true on September 1, 2025, when House Bill 700 took effect as Acts 2025, 89th Leg., R.S., ch. 723, and created Tex. Fin. Code ch. 398.

What follows are the seven provisions that actually change a negotiation, in the order you can use them. Some of them are new and untested, and we say so where that is the case: no Texas appellate court has yet construed §398.004, §398.055 or §398.056, so an argument built on those sections is an argument on fresh statutory text rather than settled law. The rest have been on the books for decades and are the reason Texas collection files look nothing like New York collection files.

One framing point before the list. Restructuring in Texas is rarely won on a single knockout argument. It is won by assembling enough separate problems, in enough different directions, that continuing to fight you costs your funder more than settling with you. Each of these seven is a problem you can put on that pile, and the ones near the top are the ones you can verify this week without filing anything.

1. Chapter 398 Put a Regulator Between You and Your Funder

Chapter 398 covers commercial sales-based financing, which §398.001(8) defines as a transaction repaid either as a percentage of sales or revenue, or under a fixed payment mechanism carrying a reconciliation process that adjusts the payment back toward a percentage of revenue. If your daily or weekly debit was pitched as a share of your receipts, you are inside the definition. Reach is broad: under §398.002 the chapter applies to a provider or broker who offers or provides these services over the internet to a Texas recipient whether or not the company has any physical presence here.

The exemptions in §398.003 are where a funder will try to escape, and they are narrower than the marketing suggests. Banks, out-of-state banks, credit unions and their subsidiaries and affiliates are out. So are Farm Credit Act lenders, technology service providers with no interest in the financing, deals secured by real property, article 2A leases, dealer and motor vehicle rental transactions of $50,000 or more, and vendor financing tied to products the funder itself manufactures or distributes. A specialty advance shop funding a restaurant or a carrier fits none of that.

Enforcement runs through the Office of Consumer Credit Commissioner. Section 398.101 sets a civil penalty of $10,000 for each violation, and the adopted rule at 7 TAC §86.321(c) lets the OCCC assess up to $1,000 for each day of violation to that $10,000 ceiling after notice and hearing. More useful to you: §86.321(b)(2) allows an injunction that includes an order to provide restitution to an identifiable person. The mechanics of the debit restriction are their own subject, and we walk through them at the Texas HB 700 page.

2. Section 398.004 Took the Purchase Label’s Best Defense Away

Every funder brief in Texas has leaned on the same sentence for twenty-five years. Tex. Fin. Code §306.103(b) says that for purposes of that chapter, the parties’ characterization of an account purchase transaction as a purchase is conclusive that it is not a transaction for the use, forbearance or detention of money. Conclusive. Not a factor, not a presumption. Label the paper a purchase of receivables and the usury chapter walks away, which is why the recharacterization fights that merchants win in New York have historically gone nowhere here.

Section 398.004 says a sales-based financing transaction is not a form of an account purchase transaction for purposes of §306.103, regardless of the principal amount of the advance. That single sentence removes the conclusive-label rule from the product. What sits behind it is Tex. Fin. Code §302.001(b), which makes any rate above ten percent a year usurious unless another law allows it, and §305.001(a-1), which makes a creditor who contracts for or receives usurious interest on a commercial transaction liable for three times the excess, with attorney’s fees under §305.005.

Two practical limits. The provision is prospective, so it does nothing for an agreement you signed before September 1, 2025, and no Texas appellate decision has yet applied it. And §305.006 sets the procedure: an action must be brought within four years of the date the usurious interest was contracted for, charged or received, and you must give the creditor written notice stating the nature and amount of the violation no later than the sixty-first day before you file. The creditor then gets sixty days to correct. That notice letter is often where the real conversation starts.

3. Registration Status Is a Question You Can Ask This Week

Section 398.053(a) is a flat prohibition: a person may not engage in business as a provider or a commercial sales-based financing broker for compensation in Texas unless, before conducting business, the person registers with the OCCC. It reaches brokers as well as funders, which matters because the broker who packaged your file is often a different company from the one debiting your account, and is often the one who made the promises you are now unhappy about.

The money and the calendar are both in the adopted rules. Under 7 TAC §86.307 the initial registration fee is $1,000 and the annual renewal fee is $1,000, with a late renewal fee of up to $1,000 on top, and the OCCC may adjust those amounts each July 1 starting in 2027 using December 2025 as the base year. Applications run through NMLS under §86.303, and the OCCC has published that registration applications must be submitted through NMLS beginning September 1, 2026. Section 398.053(b) requires a renewal filing on or before January 31 each year, and the agency has published a renewal window opening November 1 and closing December 31, with reinstatement available through February 28.

The date that actually bites is in the bill rather than the code. Section 2(a) of H.B. 700 gives a person who was already in the business on the effective date until December 31, 2026 to register. Between September 1, 2025 and July 9, 2026 there was a registration duty with no fee rule and no form, and how the OCCC treats companies that started operating in that gap is unresolved. What is not unresolved is your right to ask. A funder that cannot produce a registration number after December 31, 2026 has a regulatory problem it would rather not discuss while it is trying to collect from you.

4. A Confession of Judgment Voids the Whole Agreement

Section 398.055 is one sentence and it does more damage than anything else in the chapter: a commercial sales-based financing contract that contains a confession of judgment provision or any similar provision is void and unenforceable. Read the object of that sentence carefully. The statute does not strike the clause and save the deal. It declares the contract void. The Finance Commission then treated the same conduct as a violation in its own right at 7 TAC §86.312(b)(5).

The phrase doing the quiet work is “or any similar provision.” Funders stopped using the words “confession of judgment” years ago and moved to cognovit language, stipulated judgment addenda, affidavits of confession held in escrow, and consent-to-entry paragraphs buried in a security agreement. Whether a particular one of those is a similar provision has not been decided by any Texas appellate court, which cuts both ways, but the drafting language is broad and a funder holding a contract with that kind of paragraph in it has a real risk it would prefer to price rather than litigate.

Timing is everything here, because the section reaches contracts and not conduct, and a statute is presumed prospective under Tex. Gov’t Code §311.022 unless it is expressly made retrospective. Chapter 398 was not. So the question is when you signed, not when the funder tried to use the clause. We take that question apart, along with what happens to older paper and to judgments imported from other states, on the Texas confession of judgment page.

5. Texas Will Not Garnish Your Pay, and Funders Know It

Article XVI, §28 of the Texas Constitution says no current wages for personal service shall ever be subject to garnishment except for court-ordered child support or spousal maintenance. Tex. Civ. Prac. & Rem. Code §63.004 repeats it and discharges the garnishee as to any debt for current wages. Tex. Prop. Code §42.001(b)(1) puts current wages outside the personal property cap entirely, and §31.0025 bars a court from ordering the turnover of wages before they are paid. For ordinary commercial debt, the paycheck is untouchable in a way it is not in most states.

The consequence is not that you are safe. It is that a Texas creditor’s entire collection plan runs at the business, at your bank account, and at whatever a receiver can be talked into reaching. That is why Texas post-judgment practice is so heavily weighted toward garnishing the operating account under ch. 63 and toward the turnover statute at §31.002, and why the week a judgment is signed feels so much more violent here than the months that follow.

It also changes the shape of a settlement conversation. A funder that knows it cannot touch a guarantor’s salary is a funder whose recovery model depends on your company continuing to hold money somewhere it can find. That is leverage, and it is one of the reasons a Texas file that looks hopeless on paper often settles at a number the merchant did not expect. What a creditor can and cannot take here is laid out in detail on our Texas judgment enforcement page.

6. The Transfer Statute Prices Every Move You Are Considering

Every restructuring conversation eventually reaches the same question, usually phrased carefully: what if the trucks were in a different entity. In Texas the answer lives in the Uniform Fraudulent Transfer Act at Tex. Bus. & Com. Code ch. 24. Section 24.005(a)(1) reaches a transfer made with actual intent to hinder, delay or defraud any creditor, and §24.005(a)(2) reaches a transfer made without receiving reasonably equivalent value when the debtor was left with unreasonably small assets for its business or believed it would incur debts beyond its ability to pay.

Section 24.005(b) lists eleven factors a court weighs on intent, and read them as a checklist of what a restructuring must not look like: a transfer to an insider, the debtor keeping possession after the transfer, concealment, a transfer made after the debtor had been sued or threatened with suit, a transfer of substantially all the assets, removal or concealment of assets, insolvency at or shortly after the transfer, and a transfer shortly before or after a substantial debt was incurred. A defensible restructuring is one where documented value moved in both directions and the timeline does not sit on top of a demand letter.

The exposure has an outer edge. Under §24.010(a)(1) an actual-intent claim is extinguished unless brought within four years after the transfer, or if later within one year after the transfer was or reasonably could have been discovered, and constructive-intent claims under §24.005(a)(2) and §24.006(a) run a flat four years. Section 24.009(a) protects a transferee who took in good faith for reasonably equivalent value. None of that is a plan for moving assets away from a creditor, and we are not describing one. It is the frame counsel uses to tell you whether something you already did is a problem.

7. The Consumer Statute Is Closed to Most of These Files

Business owners who have read about deceptive trade practices usually arrive expecting the Texas DTPA to be their weapon. For most advance files it is not, and the reason is two subsections most summaries skip. Tex. Bus. & Com. Code §17.49(g) exempts any cause of action arising from a transaction or set of related transactions involving total consideration by the consumer of more than $500,000, other than one involving a consumer’s residence. That single threshold takes a large share of stacked commercial files off the board.

Section 17.49(f) closes a second door lower down. A claim arising out of a written contract is exempt if the contract involves total consideration of more than $100,000, the business was represented in negotiating it by legal counsel who was not identified or suggested by the other side, and the contract does not involve a residence. Read together, the two subsections mean the DTPA is realistically available on smaller advances signed without counsel, and mostly unavailable above that.

That is worth knowing early rather than late, because it tells you where to spend money. What remains for a Texas business is common law fraud, which carries a four-year period under Tex. Civ. Prac. & Rem. Code §16.004(a)(4), breach of the reconciliation promise as an ordinary contract claim, the usury route opened by §398.004 on newer paper, and the regulatory pressure the OCCC can apply. Those are narrower claims than a DTPA count, and they are the ones that survive a motion.

What Changes If Your Funder Is a Bank or a Bank Affiliate

The single fastest way to lose all of the Chapter 398 leverage above is to be funded by an exempt entity. Section 398.003(1) puts banks, out-of-state banks, bank holding companies, credit unions, federal credit unions, out-of-state credit unions and any subsidiary or affiliate of those institutions entirely outside the chapter. If your advance came through a bank partnership structure, the disclosure duty, the registration duty, the confession of judgment prohibition and the debit condition all fall away.

So look at the name on the agreement rather than the name on the marketing. Funding programs are frequently originated by a licensed institution and immediately sold, and the paperwork will tell you which entity actually extended the financing and which one is merely servicing it. Section 398.003(2) is worth reading in that light: a technology services provider is exempt only if it has no interest, arrangement or agreement to purchase any interest in the financing extended under the exempt entity’s program. A company that bought your file is not a technology services provider.

Where the exemption does apply, the arguments that remain are the ones that were always there in Texas: what the contract actually says about reconciliation, whether the funder performed, what the security agreement covers, and what the collection conduct looked like. Those are worth as much in a negotiation as any statute. They just take a real document review to establish rather than a citation.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.