The Bankruptcy of Debt Relief USA: A Great Irony, And A Good Reminder About the Risks of Relying Upon Credit Counseling Agencies to Resolve Your Debt Problems

Published Tuesday, June 30, 2009 @ 4:45 pm

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In an ironic twist of fate, a company’s whose claim to fame was helping people “avoid bankruptcy” has invoked bankruptcy protection itself. Debt Relief USA, a credit counseling agency based in Texas, filed Chapter 11 bankruptcy on June 18th. And it shut down all operations. According to its bankruptcy petition, DRU is currently saddled with $5 million in debt and has only $4.65 million in assets. At the same time, the company’s business practices are under investigation by state and federal authorities.

On June 24th, the bankruptcy court converted DRU’s filing to a Chapter 7 case. In other words, the company will be liquidated. Numerous clients who had hired DRU to assist them in resolving their debt problems still have money tied up in the company. DRU’s website simply says clients will receive “information” by mail about their cases. DRU’s attorney has stated the company intends to refund client deposits, subject to the bankruptcy court’s approval.

Unfortunately, getting their money back is just the start of the trouble for the clients that DRU’s bankruptcy has left hanging out to dry. They hired DRU to take of a problem, a serious problem: resolving their unmanageable debts. That won’t happen now. What’s worse, while these desperate folks were waiting around for some results, their financial condition could have only gotten worse: debts would have just kept piling up and creditors would have just continued collection efforts – only deepening their sense of despair.

The unfortunate fate of the displaced DRU clients is a prime example of the trouble with relying upon credit counseling agencies to resolve debt problems. These agencies promise to cut a deal with your creditors. But the industry is rampant with fraudulent, fly-by-the-night operations, who do nothing but take a hefty fee and then disappear. DRU itself is under investigation for questionable practices. And, even if you find a legitimate counseling agency, there’s no guarantee you’ll see any real results.

The counseling agencies may be more schooled in negotiating with creditors, but, at the end of the day, they have no more power than you do: your creditors simply have no obligation to work with them or you. And, if you’re unable to make the payments in the meantime, you can bet the late fees, interest charges, and collection calls will continue. You also need to keep in mind that even if the agency is able to convince your creditors to forgive some or all of the debt, that may be not be the end of the story: forgiven debt is generally considered taxable income.

Ultimately, bankruptcy is the only sure-fire solution to resolving unmanageable debts. Filing bankruptcy forces creditors to stop collection activities, immediately. And, you can wipe out most or all of your unmanageable debts, for good – without worrying about potential tax liability. So, if you’re buried in debt, call a bankruptcy attorney today and learn how you can rid yourself of these burdensome debts once and for all.

In North Carolina, contact The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson. Call (toll free) 1-800-899-1414, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.

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