Credit adviser accepts trustee

AmeriDebt to be run by bankruptcy manager

Appointee to be announced today

Move follows call for possible fraud probe

September 16, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

AmeriDebt agreed yesterday to be run by an independent bankruptcy trustee, several days after a court examiner released a report recommending that some of its dealings be investigated for possible fraud.

The Montgomery County nonprofit, which became one of the largest credit counseling agencies in the country through heavy advertising targeting debt-laden consumers, had been expected to resist a move to appoint a trustee during yesterday's hearing in U.S. Bankruptcy Court in Greenbelt.

"We knew that they were all anxious to have one appointed," AmeriDebt lawyer Nelson Deckelbaum said after the brief hearing. "Although we felt that it was really unnecessary, we thought that a fight wouldn't really serve any useful purpose and we would simply go along with the trustee."

A trustee is expected to be named today, and the selection must be approved by the bankruptcy court judge.

Among those attending yesterday's hearing were representatives from agencies that are suing AmeriDebt, including the Federal Trade Commission.

"What we're happy with is an independent fiduciary will be in place, reviewing everything and making independent decisions," said Jeanne M. Crouse, assistant director with the FTC's division of planning and information. "Ultimately, consumers will be serviced at a reasonable rate, we hope."

AmeriDebt, which recently moved from Germantown to smaller offices in Gaithersburg, filed for reorganization under Chapter 11 in early June. Within a few weeks, the U.S. Trustee, whose role is to look out for the interests of creditors, requested a trustee to be named to manage AmeriDebt.

AmeriDebt had already abdicated its management and finances to a for-profit company that processes AmeriDebt customer accounts, the U.S. Trustee argued in June. Additionally, the Trustee said, the counseling agency had gone through two chief executive officers within the past year, and doesn't have one now.

A counseling agency restructures consumers' bills under a debt management plan. The consumer makes a consolidated monthly payment to the agency, which forwards the money to creditors. AmeriDebt and some of the other, newer agencies have been accused of charging too much for their services and putting vulnerable debtors deeper into hock.

Besides the FTC, the states of Illinois, Missouri, Minnesota and Texas have sued AmeriDebt, essentially accusing the agency of deceptive business practices and not acting like a nonprofit. The Internal Revenue Service, which has been investigating the nonprofit status of credit agencies, has filed a claim of more than $15 million against AmeriDebt in anticipation that it might lose its nonprofit designation.

Once appointed, the independent trustee is expected to follow up on the issues raised in a bankruptcy court examiner's report on AmeriDebt's finances that was released last weekend.

That report urged a probe into the potentially fraudulent transfer in 1999 of AmeriDebt's assets to a for-profit company started by AmeriDebt's former chief executive, Andris Pukke. Pukke's lawyer has said the assets were exchanged for fair market value.

At yesterday's hearing, Deckelbaum tried to press AmeriDebt's case on other matters.

AmeriDebt opposes transferring client accounts to another credit counseling agency as some suggest, Deckelbaum said.

The multiple lawsuits against AmeriDebt by federal and state regulators threaten to drain substantial sums of money that could go to creditors, the lawyer said. Also, allegations from these lawsuits provide fodder to the IRS, which could revoke AmeriDebt's nonprofit status, he said.

"If that happens, the whole thing will turn to dust," Deckelbaum said.

Deckelbaum, however, praised the examiner's report, which he claimed showed that AmeriDebt's financial records are in order.

"I don't get that from the examiner's report," responded U.S. Bankruptcy Judge Paul Mannes, adding that the issues raised by Deckelbaum will need to be addressed later by the trustee.

Since its legal troubles began mounting last year, AmeriDebt has stopped advertising and accepting new clients. It has about 57,000 customers, including about 2,600 Marylanders.

Last year, Maryland passed a law requiring credit counseling agencies to be licensed if they do business in the state. AmeriDebt's application for a license was rejected in April. AmeriDebt has been working with state regulators to transfer Maryland accounts to a licensed agency, but no agreement has been reached.

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