AmeriDebt Inc.'s surprise bankruptcy filing over the weekend won't affect consumers here or disrupt a plan to transfer the credit counselor's Maryland clients to another agency in the next few weeks, state regulators said yesterday.
Montgomery County-based AmeriDebt, in the business of helping consumers manage their debt payments to creditors, filed for Chapter 11 bankruptcy protection Saturday. This will allow the nonprofit agency to keep its creditors at bay while reorganizing its finances.
In its petition filed with the U.S. Bankruptcy Court in Greenbelt, AmeriDebt said it had total assets of $8.38 million and debts of $12.36 million.
The bankruptcy filing caps off a rough year-and-a-half for AmeriDebt, which has been accused of high-pressure sales tactics, charging excessive fees and acting like a money-making venture.
The Federal Trade Commission, Illinois, Missouri, Texas and Minnesota have sued AmeriDebt. Last fall, in response to the bad publicity, the Germantown company laid off much of its staff, suspended advertising and stopped enrolling new clients.
AmeriDebt's operations were further limited in April when Maryland regulators rejected the agency's license application because of the group's weak financial condition.
The state in recent weeks has been negotiating with AmeriDebt to turn over its 5,000 to 6,000 Maryland customers to a licensed credit counselor, although no agreement has been reached, said Liz Williams, a spokeswoman with the Maryland Department of Labor, Licensing and Regulation.
AmeriDebt officials weren't commenting yesterday. In a statement Saturday, officials said the bankruptcy filing won't impede its operations and consumers' payments were safely held in a separate trust and would continue to be sent to creditors on time.
According to the bankruptcy filing, AmeriDebt's income from consumers and creditors fell from $69.4 million in 2002 and $48.7 million last year to $11.1 million this year.
AmeriDebt's largest unsecured creditor - with an $8 million claim - is a group of consumers in a class action lawsuit filed in Illinois in December 2001.
The lawsuit accused AmeriDebt of not properly disclosing an upfront fee of $200 to $300, which was pocketed by the nonprofit instead of forwarded to creditors, said Malik Diab, the plaintiffs' Chicago attorney.
Earlier this year, the court gave preliminary approval to an $8 million settlement, which could cover about 400,000 consumers, Diab said. The FTC filed a petition with the court saying the settlement isn't enough for consumers, he said.
But Diab said plaintiffs agreed to settle out of concern that AmeriDebt and its affiliates, also named as defendants, would file for bankruptcy and consumers wouldn't get anything.
AmeriDebt's second largest unsecured creditor with a $3.69 million claim is the Ballenger Group, a Frederick company that processes AmeriDebt's client accounts.
Eric Friedman, acting division chief for Montgomery County Consumer Affairs Office, said it might be difficult for AmeriDebt to survive.
Besides the lawsuits and the lack of a license from Maryland, creditors are cutting back on the amount of money they pay groups like AmeriDebt for helping consumers, Friedman noted.
"Consumers are no longer in the dark about AmeriDebt and what they do," Friedman said.
