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Debt Settlement Firms--Fraudulent Transfers

posted by Adam Levitin

There's a nice piece about debt settlement companies in the NYTimes.  

The story left me wondering whether Ms. Robertson, who paid $4,000 to the debt settlement firm without getting any debt relief might have a fraudulent transfer claim against them.  I recognize that it is far from clear whether such a suit would succeed; there is a REV question and an insolvency question at the very least, and the trustee might not want to litigate over what is at most a few thousand dollars in most cases.  Yet especially for no-asset cases, the avoidance action might be the only real value available for creditors.  

Does anyone know of fraudulent transfer suits being filed against debt settlement firms?  Are trustees or creditors starting to inquire at 341 meetings whether the debtor has been making debt settlement payments?  I'm curious to here whether practitioners have started to account for pre-bankruptcy debt settlement attempts.  


you dont understand how the poor react to being taken; they know no attorneys, nor do their friends, so the last thing they would do would be to seek legal advice...

I always list payments made for debt settlement/consolidation under item #9 of the Statement of Financial Affairs. I haven't heard any trustees ask about it, but ideally they shouldn't have to look too hard to discover such payments if they're interested.

Trustees are asking about transactions with these types of firms - debt settlement, mortgage 'help' outfits, etc. Paperwork on the "arrangements" are requested. My understanding is that criminal referrals are being made on these businesses to the United States Trustees. Not sure if fraudulent transfer actions are being pursued.

rjs--debt settlement isn't for the poor (in terms of income). Most debt settlement companies won't touch you unless you have at least $10K in credit card debt. That's a problem that starts with the lower middle class.

In any case, my question was about the situation of someone who goes through debt settlement and then files for bankruptcy. Once you file, even pro se, fraudulent transfer actions are the trustee's to pursue, not yours.

There are a rather big chunk of debt settlement clients that opt to go through bankruptcy as a debt settlement attempt was their last resort before filing.

this is not a fraudulent attempt but rather a legitimate one.

We should be talking about how to stay out of debt, after we have managed to pay off those debt. most families are deep in debt not becouse of low income, but becouse of the way they spend, we need reeducation.

The society is facing problems with such laws. This has to go legal and it’s needed to be sorted at the earlier.
Credit Debt

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