Not long ago I was having a conversation with someone and we were talking about the big refunds debt settlement companies may face from having charged consumers advanced fees for services but not delivered them.
The point was also mentioned that for debt settlement clients that enrolled in and paid fees for debt settlement services that later filed bankruptcy, for whatever reason, created a huge gaping liability for debt settlement companies.
Bankruptcy trustees can reach back in time and recover money paid for debt relief services within two years of the debtor’s filing for bankruptcy.
This case was brought to my attention as an example of this actually happening. The case resulted in a default judgment against Legal Helpers Debt Resolution for $6,500. – Source
Here is the story of how this happened from the lawsuit filed by the bankruptcy trustee.
- On August 30, 2010, LEONARD W MAY AND JUDITH L MAY, hereinafter “Debtors”, filed a petition for relief under Chapter 7, Title 11, United States Code, Case No. 10-74328.
- BERNARD J. NATALE has at all times been the duly appointed, acting Trustee in said cause.
- This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. Section 1334, and 28 U.S.C. Section 157. This matter is a “core” proceeding.
- The debtors disclosed in their Statement of Financial Affairs under Paragraph No. 9, under payments related to debt counseling or bankruptcy, that between February 2010 and June 2010 they had paid Legal Helpers Debt Resolution, LLC., approximately $6,500 for credit counseling services.
- The debtors engaged the services of Legal Helpers Debt Resolution, LLC., on or about February 15, 2010 by signing a retainer agreement.
- The terms of the retainer agreement provided for a $500 retainer fee plus 15% of the total debt scheduled as the Defendant’s fee for representation in this matter.
- The Defendant debt resolution performed no services in consideration for the $6,500 in fees that it received prior to the debtors commencing their bankruptcy.
- The Debtors received less than a reasonably equivalent value in exchange for the payment provide to the Defendant.
- The $6,500 payment occurred within 2 years of the filing of the debtors’ bankruptcy.
- The $6,500 payment occurred while the Debtors were insolvent.
- The $6,500 payment is recoverable by the Trustee as a fraudulent conveyance and should be turned over to the Trustee to administer for the benefit of creditors.
Here is a similar recent action against Freedom Debt Relief that resulted in a default judgment and the repayment of all monies paid. – Complaint, Judgment
The consequences of charging consumers in trouble for services and not delivering them has far reaching consequences and while you may feel the client is long gone and so is the risk, that’s not true as I’ve shown.
The best course of action is to only take on clients you can positively assist, do an excellent job, and deliver on the promises made. In this environment, anything less is a ticking time bomb.
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GO LHDR!!!!
GO LHDR!!!!
if debt settlement companies charged a fee in advance to settle accounts but did not settle any accounts prior to filing BK, than they should be entitled to a full refund. this law stuff is just a way to screw the consumer over. How would you feel if one of your family members went with a debt settlement co that didnt do the actual work yet but refuses to refund?
Hold up – not so fast.
These were DEFAULT JUDGMENTS and, thus, not *truly* decided on the merits. If you really want to know how the law is developing on the intersection between debt settlement and bankruptcy, I kindly draw your attention to the recent 8th Circuit Court of Appeals ruling that, under the facts presented, debt settlement services are not fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(B) – see: http://www.ca8.uscourts.gov/op… .
Make no mistake – an appellate ruling from a Federal court has infinitely more precedential value than a couple of default judgments.
Hold up – not so fast.
These were DEFAULT JUDGMENTS and, thus, not *truly* decided on the merits. If you really want to know how the law is developing on the intersection between debt settlement and bankruptcy, I kindly draw your attention to the recent 8th Circuit Court of Appeals ruling that, under the facts presented, debt settlement services are not fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(B) – see: http://www.ca8.uscourts.gov/opndir/10/12/106056P.pdf .
Make no mistake – an appellate ruling from a Federal court has infinitely more precedential value than a couple of default judgments.
if debt settlement companies charged a fee in advance to settle accounts but did not settle any accounts prior to filing BK, than they should be entitled to a full refund. this law stuff is just a way to screw the consumer over. How would you feel if one of your family members went with a debt settlement co that didnt do the actual work yet but refuses to refund?
Glad to hear I was able to help. Thank you for the kind testimonial.
Steve
Well, well. As our own bankruptcy case goes forward, large in part due to the preditory promises of a debt settlement company, and, I admit, to our own foolish habits of the past, I can’t help but cheer loudly. Could this be the nail in the advanced fee coffin? Thanks to Steve and GetOutofDebt, we were able to recover enough to pay our bankruptcy lawyer, leaving about $3500 in the hands of the company we trusted. As I look back, they caved in pretty easily, not wanting us to persue the letter writing to FTC, two state attorney generals, and others. It’s likely I could have pushed for more.
Steve, I can’t say this enough. The service you provide is of the greatest value to people like us. All of us.
Well, well. As our own bankruptcy case goes forward, large in part due to the preditory promises of a debt settlement company, and, I admit, to our own foolish habits of the past, I can’t help but cheer loudly. Could this be the nail in the advanced fee coffin? Thanks to Steve and GetOutofDebt, we were able to recover enough to pay our bankruptcy lawyer, leaving about $3500 in the hands of the company we trusted. As I look back, they caved in pretty easily, not wanting us to persue the letter writing to FTC, two state attorney generals, and others. It’s likely I could have pushed for more.
Steve, I can’t say this enough. The service you provide is of the greatest value to people like us. All of us.
Glad to hear I was able to help. Thank you for the kind testimonial.
Steve
How incredibly ironic. Legal Helpers sales affiliates are very proud of this new Legal Representation they are now offering their debt settlement clients. How much confidence should consumers put in that when they couldn’t even get an attorney to show up and file an answer in their own case? I take two things away from this.
1. They can’t be relied on to show up and timely respond to any legal issues a client is having and/or
2. They had absolutely no response, and knew they would not be able to show how they earned 6500 dollars by doing nothing.
So they had no choice, but decided not showing up was better than showing up and then not being able to offer any justification for their 6500 dollar fee.
How incredibly ironic. Legal Helpers sales affiliates are very proud of this new Legal Representation they are now offering their debt settlement clients. How much confidence should consumers put in that when they couldn’t even get an attorney to show up and file an answer in their own case? I take two things away from this.
1. They can’t be relied on to show up and timely respond to any legal issues a client is having and/or
2. They had absolutely no response, and knew they would not be able to show how they earned 6500 dollars by doing nothing.
So they had no choice, but decided not showing up was better than showing up and then not being able to offer any justification for their 6500 dollar fee.
“The best course of action is to only take on clients you can positively assist, do an excellent job, and deliver on the promises made.”
Exactly why many of our clients are denied for any of our programs. If it makes sense for them to keep making their minimum payments, we will just educate them on which ones to pay off first and where to go from there. Never will our clients be sold on a program as they’ll less than likely drop out. We counsel on all the debt management services, from CCS to debt settlement and even bankruptcy and always inform the clients on the pros, cons, and risks of each given solution. By offering more than one program you are not molding clients into that one solution. You’re actually couseling them on all their options to not only see what works for them now but also their financial goals. A factor that is most often forgotten if you only offer one solution. When you try to jam so many of the wrong pieces into a puzzle you usually end up with nothing.
“The best course of action is to only take on clients you can positively assist, do an excellent job, and deliver on the promises made.”
Exactly why many of our clients are denied for any of our programs. If it makes sense for them to keep making their minimum payments, we will just educate them on which ones to pay off first and where to go from there. Never will our clients be sold on a program as they’ll less than likely drop out. We counsel on all the debt management services, from CCS to debt settlement and even bankruptcy and always inform the clients on the pros, cons, and risks of each given solution. By offering more than one program you are not molding clients into that one solution. You’re actually couseling them on all their options to not only see what works for them now but also their financial goals. A factor that is most often forgotten if you only offer one solution. When you try to jam so many of the wrong pieces into a puzzle you usually end up with nothing.
I hope all the consumers that paid 6 months of advance fees that didnt get any value for their service reads this.
I hope all the consumers that paid 6 months of advance fees that didnt get any value for their service reads this.