(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Debtor--Any person or entity liable or potentially liable for an obligation owed to the commission or against whom a claim or demand for payment has been made, for Lottery Retailer related obligations.
  (2) Delinquent--Payment is past due by law or by customary business practice, and all conditions precedent to payment have occurred or been performed.
  (3) Make demand--To deliver or cause to be delivered by United States mail, first class, a writing setting forth the nature and amount of the obligation owed to the commission. A writing making demand is a "demand letter."
  (4) Obligation--Any debt, judgment, claim, account, fee, fine, tax, penalty, interest.
  (5) Security--Any right to have property owned by an entity with an obligation to the commission, for Lottery Retailer related obligations, sold or forfeited in satisfaction of the obligation; and any instrument granting a cause of action in favor of the State of Texas and/or the commission against another entity and/or that entity's property, typically, certificates of deposits and agency agreements pursuant to assignments of certificates of deposit, but, could include other security such as a bond, letter of credit, or other collateral that has been pledged to the commission to secure an obligation.
(b) Before referring any obligation to the attorney general, the commission will:
  (1) Attempt to determine the liability of each person responsible for the obligation, whether that liability can be established by statutory or common law. Provide the attorney general with the name of the registered agent, and the address of the registered office of any business organization for which a registered agent is required, and, if known, the name and address of the principal officers of the business entity. If the debtor is an individual, the commission will provide the attorney general with the name and last known business address and residence address of the individual.
  (2) All demand letters will be mailed in an envelope bearing the notation "Return Service Requested." If an address correction is provided by the United States Postal Service, the demand letter will be re-sent to that address prior to the referral to the attorney general. Demand will be made upon every debtor prior to referral of the account to the attorney general. The final demand letter will include a statement, where practical, that the debt, if not paid, will be referred to the attorney general.
  (3) If state law allows the commission to record a lien securing the obligation, the commission will file the lien in the appropriate records of the county where the debtor's principal place of business, or, where appropriate, the debtor's residence, is located or in such county as may be required by law. The lien will be filed as soon as practicable after determining that the account is delinquent. After referral of the delinquency to the attorney general, any lien securing the indebtedness will not be released, except on full payment of the obligation, without the approval of the assistant attorney general representing the commission in the matter.
  (4) Where practicable, the commission will maintain individual collection histories of each account in order to document attempted contacts with the debtor, the substance of communications with the debtor, efforts to locate the debtor and his assets, and other information pertinent to collection of the delinquent account.
  (5) Prior to referral of the obligation to the attorney general, the commission will (except in the case where a jeopardy determination has been made):
    (A) verify the debtor's address and telephone number;
    (B) transmit no more than two demand letters to the debtor at the debtor's verified address. The first demand letter will be sent no later than 30 days after the obligation becomes delinquent. The second demand letter will be sent no sooner than 30 days, but not more than 60 days, after the first demand letter;
    (C) verify that the obligation is not legally uncollectible or uncollectible as a practical matter. The commission will use its best efforts to ensure that referred obligations are not uncollectible, including but not limited to actions in the following circumstances:
      (i) Bankruptcy. The commission will prepare and timely file a proof of claim, when appropriate, in the bankruptcy case of each debtor, subject to reasonable tolerances adopted by the commission. Copies of all such proofs of claims filed should be sent to the attorney general absent direction by the attorney general to the contrary. The commission will maintain records of notices of bankruptcy filings, dismissals and discharge orders received from the United States bankruptcy courts to enable the commission to ascertain whether the collection of the claim is subject to the automatic stay provisions of the bankruptcy code or whether the debt has been discharged. The commission will seek the assistance of the attorney general in bankruptcy collection matters where necessary, including the filing of a notice of appearance and preparation of a proof of claim.
      (ii) Limitations. If the obligation is subject to an applicable limitations provision that would prevent suit as a matter of law, the obligation will not be referred unless circumstances indicate that limitations has been tolled or is otherwise inapplicable.
      (iii) Corporations. If a corporation has been dissolved, has been in liquidation under Chapter 7 of the United States Bankruptcy Code, or has forfeited its corporate privileges or charter, or, in the case of a foreign corporation, had its certificate of authority revoked, the obligation will be referred unless circumstances indicate that the account is clearly uncollectible.
      (iv) Out-of-state debtors. If the debtor is an individual and is located out-of-state, or outside the United States, the matter will not be referred unless a determination is made that the domestication of a Texas judgment in the foreign forum would more likely than not result in collection of the obligation, or that the expenditure of commission funds to retain foreign counsel to domesticate the judgment and proceed with collection attempts is justified.
      (v) Deceased debtors. If the debtor is deceased, the commission will file a claim in each probate proceeding administering the decedent's estate. If such probate proceeding has concluded, and there are no remaining assets of the decedent available for distribution, the delinquent obligation will be classified as uncollectible and will not be referred. In cases where a probate administration is pending, or where no administration has been opened, all referred obligations will include an explanation of any circumstances indicating that the decedent has assets available to apply toward satisfaction of the obligation.
  (6) In the case, where factors come to the attention of the commission, which indicate that the collection of the debt due to the state is jeopardized, or where the property and assets of the commission entrusted to the debtor are in jeopardy, the commission may issue a jeopardy determination stating the amount due and that the collection is in jeopardy, and that the amount due the commission is immediately due and payable.
  (7) Not later than the 180th day after the date an obligation becomes delinquent, the commission will report the uncollected and delinquent obligation to the attorney general for further collection efforts as hereinafter provided.
  (8) In the case of a jeopardy determination, the account may be referred to the attorney general at any time after the expiration of 20 days after service by personal service or by mail.
  (9) The commission will adopt reasonable tolerances, in consultation with the attorney general, below which an obligation shall not be referred. Factors to be considered in establishing tolerances include: the size of the debt; the existence of any security; the likelihood of collection through passive means such as the filing of a lien where applicable; expense to the commission and to the attorney general in attempting to collect the obligation; and the availability of resources both within the commission and within the Office of the Attorney General to devote to the collection of the obligation.
  (10) The commission will utilize the "warrant hold" procedures of the Comptroller of Public Accounts authorized by the Texas Government Code, §403.055, to ensure that no treasury warrants are issued to debtors until the debt is paid. (See Accounting Policy Statement 28, "Reporting of State Debts and Hold Offset Procedures," issued November 22, 2005, updated September 18, 2015, and as it may be amended, available on the Comptroller of Public Accounts' website, at https://fmx.cpa.texas.gov/fm/pubs/aps/).
(c) Referral to the attorney general.
Cont'd...
(1) The commission will refer individual accounts to the attorney general after the procedures set forth in subsection (a)(6) - (8) of this section have been exhausted and an obligation remains. Individual accounts referred to the attorney general will include the following:
    (A) copies of all correspondence between the commission and the debtor;
    (B) a log sheet (see subsection (a)(5) of this section) documenting all attempted contacts with the debtor and the result of such attempts;
    (C) a record of all payments made by the debtor and, where practicable, copies of all checks tendered as payment;
    (D) any information pertaining to the debtor's residence and his assets; and
    (E) copies of any permit application, security, final orders, contracts, grants, or instrument giving rise to the obligation.
  (2) Delinquent accounts upon which an uncollected bond or other security is held shall be referred to the attorney general no later than 180 days after becoming delinquent. All such accounts where the principal has filed for relief under federal bankruptcy laws will be referred to the attorney general immediately.

Source Note: The provisions of this §401.371 adopted to be effective August 30, 2010, 35 TexReg 7794; amended to be effective August 28, 2017, 42 TexReg 4296