Debt Relief USA Inc.’s customers may get restitution

21 Aug Debt Relief USA Inc.’s customers may get restitution

Texas Attorney General Greg Abbott took legal action to recover $4.6 million that a bankrupt “debt settlement” company wrongfully withheld from its clients in Texas and other states. Additionally, the Texas Attorney General is seeking civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as attorney fees from this “debt settlement” company.

When Debt Relief USA Inc. of Addison, Texas filed for bankruptcy protection in the Northern District of Texas in June of this year, many financially distressed consumers found their debt situation worsened. Instead of getting the debt relief they were promised – they received no assistance (that they had paid for) and are now being pursued by collection companies.

Debt Relief USA targeted individuals with thousands of dollars in unsecured debt, promising customers it would make them “debt-free in as little as 36 months.” Under their program, debtors would stop paying their debts in order to save the money they would have paid creditors over time. Instead, debtors would pay monthly installments to Debt Relief USA, which promised to later negotiate settlements at lower pay-offs with their creditors.

Investigators from the Texas Attorney General’s office found that Debt Relief USA assessed an “administration fee” of approximately 8 percent of each customer’s total debt, as well as monthly “maintenance fees” of up to $40.00. If the company successfully settled a debt, it then charged a “negotiation fee” of 13 percent of the amount of debt saved.

Court documents filed with the bankruptcy court by the Texas Attorney General state that the fees Debt Relief USA collected are considered “set-aside” funds. Texas law (Texas Finance Code) prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner. Debt Relief USA did not meet the registration or bond requirements. As a result, the Texas Attorney General has filed a proof of claim in the bankruptcy case seeking restitution for debtors who have been financially harmed by Debt Relief USA and for the return of any fees paid to Debt Relief USA by current or former clients.

Additionally, the office of the Attorney General moved to protect the Debt Relief USA’s clients’ privacy by having their names and confidential information removed from the public record.

The AG’s office also succeeded in having the case converted from a Chapter 11 reorganization to a Chapter 7 liquidation. The Chapter 7 trustee’s duties include liquidating Debt Relief USA and paying claims to creditors.

Texans who believe they have been deceived by similar fraudulent business practices should call the Office of the Attorney General’s toll-free complaint line at 1-800-252-8011 or file a complaint online at www.texasattorneygeneral.gov

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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