Chase Bank Kicking the Shit Out of Attorney Run Debt Settlement. Not the Safe Harbor Some Think.
In June, 2010 Chase bank filed an adversarial proceeding against now disbarred attorney Keith “Andy” Nelms in his bankruptcy filing that he filed when his debt settlement law firm, Allegro Law, went bust.
The complaint filed by Chase seems to make it pretty clear they are not fans of debt settlement.
Chase makes an interesting argument when it says the attorney, debt settlement company, and other parties involved conspired to collect money from consumers due to creditors and to take money from those funds for their own personal gain. “The Debtor, who took “millions” from “unsuspecting consumers” “for payment of credit card debt,” “illicitly divert[ed]” some of that money to himself, his family and other businesses.”
This position is not just that of Chase Bank, it was also the position of the Judge in the bankruptcy case of Allegro Law. You can read that memorandum here.
From the complaint. All the attachments are in the source link at the end of this complaint.
- As described by one State Attorney General, debt settlement is, at best, an “aggressive” and “risky” form of debt management in which consumers stop paying all of their unsecured debts in an attempt to have their creditors agree to a reduced settlement. See Plaintiff’s Complaint, State of Texas v. CSA-Credit Solutions Services of America, Inc., No. 09- 00417, at p. 2 (Dist. Ct. Travis County, Tex. Mar. 26, 2009) attached hereto as Exhibit A. The myriad risks inherent in a debt settlement program “can have catastrophic effects on the consumer,” including the following: (a) an increase in the amount owed by the consumer due to the addition of interest, late fees and penalties on any accounts that are not being paid, (b) a creditor’s decision not to accept, let alone entertain, any settlement offers, (c) an increase in collection calls, (d) a drop in the consumer’s credit score, and (e) an increase in tax liability because any debt forgiveness that may occur as part of the settlement is taxable as income. Id. at 3. As discussed below, when these inherent risks are coupled with promoters who are operating with fraudulent intent and spurious “legal” theories, it is a recipe for disaster.
- The Debtor began operating a debt settlement scheme under the name Allegro Law, LLC (“Allegro”) in April 2008. In an order permanently shutting down Allegro’s operations at the behest of the Alabama Attorney General and the Alabama Securities Commission, the Circuit Court of Autauga County, Alabama found, inter alia, that the Debtor and Allegro had “promoted a particularly risky form of debt-settlement service where consumers were counseled to stop paying monthly minimum amounts to their creditors with the chance that those creditors would either write off the debt in full or at least agree to a substantial reduction in the amount” due. See State of Alabama, et al. v. Allegro Law, LLC, et al., No. CV-09-125-F, at pp. 19-20 (Cir. Ct. Autauga County, Ala. Feb. 11, 2010) (order granting permanent injunction and appointing receiver), attached hereto as Exhibit B. As a result, consumers faced “increased interest rates, late fees, further damage to their credit ratings, and additional and increased collection activities by their creditors.” Id. at 20. The Court further found that although “unsuspecting consumers” had “paid millions to Defendants for payment of credit card debt,” the Debtor and Allegro “are illicitly diverting some of this money to themselves and their families and other businesses. Continued irreparable harm will result to consumers without the requested relief because Defendants have already transferred funds to individuals who are not creditors of consumers.” Id. at 14. As a further result of his operation of Allegro, the Alabama State Bar brought an action against the Debtor which resulted in his suspension from the practice of law effective July 9, 2009. See In the Matter of Keith Anderson Nelms, ASB Nos. 08-247 and 09- 4981, and CSP 09-1684 (Ala. Jul. 9, 2009) (order suspending Keith A. Nelms from the practice of law), attached hereto as Exhibit C.
- The Debtor’s scheme is simply the latest manifestation of a fraudulent debt elimination scheme created by Hess Kennedy Chartered, LLC, and its principals and affiliates (collectively, “Hess-Kennedy”). It was only after the Florida Attorney General and others filed suits against Hess-Kennedy that suddenly Allegro and its debt settlement scheme sprang to life while Hess-Kennedy’s efforts tailed off dramatically. The Allegro program — right down to the form letters used — varied imperceptibly, if at all, from what had preceded it.
- On April 10, 2009, Chase brought suit against the Debtor, Allegro and AmeriCorp, Inc. (“AmeriCorp”) [The back office processor.], Allegro’s and Hess-Kennedy’s back office processor, in the United States District Court for the Eastern District of New York, Chase Bank USA, N.A. v. Allegro Law, LLC, et al., Case No. 08-CIV-4039 (DRH)(WDW). Chase initiated suit to stop the Debtor, Allegro and AmeriCorp from perpetuating the unlawful debt settlement and related schemes first devised and operated by Hess-Kennedy, its affiliates, principals and others acting in concert with them, including AmeriCorp. As a result of Hess-Kennedy’s schemes, Chase cardmembers responsible for more than 12,000 credit card accounts had refused to make any further payments on account balances in excess of $75 million dollars of legitimate debt owed to Chase. Although the Debtor’s continuation of Hess-Kennedy’s schemes only began in 2008, as a result of the Debtor’s fraudulent debt settlement scheme, Chase cardmembers responsible for more than 5000 accounts have ceased making payments on at least $39 million in credit card account balances owed to Chase. Those cardmembers, and Chase itself, have been severely injured by the actions of the Debtor, Allegro and AmeriCorp, and specifically the Debtor’s perpetuation of Hess-Kennedy’s pernicious schemes.
- The Debtor’s perpetuation of Hess-Kennedy’s unlawful schemes is particularly reprehensible in light of the fact that the Attorneys General for Florida, North Carolina and West Virginia each successfully brought actions against Hess-Kennedy. In an eerie foretelling of the fates of Allegro and the Debtor, the lawsuit filed by the Florida Attorney General under Florida’s Deceptive and Unfair Trade Practices Act resulted in the appointment of a receiver (the “Florida Receiver”) who took over Hess-Kennedy’s operations on July 18, 2008. See Office of the Attorney General v. Laura L. Hess, Esq., et al., No. 08-007686-08 (Cir. Ct. Broward County, Fla. July 18, 2008) (order appointing receiver), attached hereto as Exhibit D. In addition, due to their role in the fraudulent debt settlement scheme, two of the attorneys involved with Hess-Kennedy were suspended from the practice of law.
- The Debtor has replicated the unlawful tactics utilized by Hess-Kennedy and AmeriCorp, in effect taking over Hess-Kennedy’s general processes following the adverse legal actions taken against Hess-Kennedy. Mimicking Hess-Kennedy’s prior conduct, the Debtor induced Chase cardmembers to “retain” Allegro as part of a so-called “bankruptcy prevention program” and, just as occurred in the Hess-Kennedy scheme, caused those cardmembers to instruct Chase to cease all direct contact with them and to deal only with Allegro in connection with their “alleged debt[s]” to Chase. The Debtor also sent Chase virtually identical form letters stating that Allegro’s “counselors” will be reviewing the cardmember’s account as part of a “financial evaluation” and warning Chase not to have any direct contact with the cardmember. The form letters sent by the cardmembers and/or Allegro contain thinly veiled threats of unspecified Fair Credit Billing Act and/or other statutory violations. See Allegro form of demand attached hereto as Exhibit E. Between April 2008, when Allegro’s involvement began, and the end of March 2009, Chase received more than 6,000 such form letters from Allegro on behalf of cardmembers in all fifty states, plus residents of the District of Columbia and Puerto Rico. At the same time, correspondence from entities which were unquestionably part of the Hess-Kennedy debt elimination scam slowed to a trickle of their former volume. Chase has determined that, as was the case with Hess-Kennedy, cardmembers stopped paying Chase amounts owed on their credit card bills after retaining the Debtor and Allegro. – Source
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