THE ATTORNEY GENERAL OF TEXAS
Ken Paxton

Frequently Asked Questions
Debt Relief USA Bankruptcy

In order to be considered for a refund in this case, you had to be a current customer of Debt Relief USA in June 2009 as well as had money in your savings account with them.

Q: I received documents that reference a settlement and a claims objection – what is this?

A: The Texas Attorney General has reached a settlement with Debt Relief USA (DRUSA) that will allow the company to begin refunding money to consumers. To do this, the Attorney General will be allowed a claim in the bankruptcy for the full amount of fees and set aside funds paid by customers (past and present) of Debt Relief USA. Because the Attorney General’s claim overlaps the claims of customers, the trustee needs to object to the customers’ claims. This will NOT affect your claim to a refund since your claim is preserved by the Attorney General’s claim.

Q: How much money will I get back?

A: In order to expedite payment, the Texas Attorney General and bankruptcy trustee have asked the court to pay refunds based on the books and records of Debt Relief USA. Amounts eligible for refunds include any money you paid to Debt Relief USA as settlement funds (money set aside to fund settlements) that has not been paid to creditors and any money you paid as fees. Refunds will be paid in the following order:

  1. Settlement funds still held by Debt Relief USA up to $2,425.00.
  2. Settlement funds still held by Debt Relief USA above $2,425.00 (because of the limited funds held by Debt Relief USA, this amount likely will be prorated, meaning you will not receive the full amount you are owed according to the company’s records).
  3. Any fees paid to Debt Relief USA (because of the limited funds held by Debt Relief USA, this amount likely will not be refunded).
Q: What do I need to do to get my money back?

A: Nothing. If the company’s books and records indicate that you are owed money back in set aside funds, you will receive a refund of that amount, up to $2,425.00, shortly after the bankruptcy court approves the settlement. If you are owed more than $2,425.00 in set aside funds, you will be entitled to a second payment at the end of the bankruptcy.

Q: I believe I am owed a refund (or a different amount) but the company’s records don’t reflect that – what can I do?

A: You can ask the court to consider your claim by filing a response to the documents that were sent to you. Because the Texas Attorney General is not your attorney in this matter, this office will not be able to assist you in that process, and it may affect the speed and amount of payment you receive.

Q: Why is there a limit of $2,425.00 for the first payment?

A: Under the bankruptcy code, certain types of payments get priority treatment and can be paid quickly and before other claims. In some instances however, such payments are capped to a certain amount. In this case, settlement funds still held by Debt Relief USA are being treated with such a priority – they will be paid quickly, but the bankruptcy code requires that such payments each be capped at $2,425.00.

Q: I paid a lot of money in fees to Debt Relief USA, but don’t feel like I got the service I paid for. Why am I not getting a refund of my fees?

A: While the Attorney General’s claim does include amounts paid in fees by consumers, it is not anticipated at this time that there will be enough money in the bankruptcy estate to refund fees. At the time of filing for bankruptcy, the company’s money consisted primarily of cash held to fund customers’ settlements - or in other words, the savings accounts for its customers. The Attorney General and bankruptcy trustee have agreed that customers should receive a refund of their savings first, since this was money customers had set aside to pay their debts. Moreover, at the time of bankruptcy, there were approximately 14,000 current and former customers of Debt Relief USA who paid approximately $28,000,000 in set asides (savings accounts) and fees. As there is only about $4.5 million in the estate, there is simply not enough money to refund both set asides and fees.

Q: When will I receive my money?

A: The settlement and payment process are subject to the bankruptcy court’s approval, so no specific date is known at this time. However, if approved, the initial payment of $2,425.00 will be sent shortly after the court has approved the objections to customers’ claims and before the holidays. Any remaining payments will be made at the conclusion of the bankruptcy case, which may take several additional months.

Q: Is Debt Relief USA still operating?

A: On June 18, 2009, Debt Relief USA (DRUSA) filed for bankruptcy. DRUSA is no longer in business and is being liquidated by a court-appointed trustee. DRUSA is no longer able to settle or pay the debts of its clients. The Trustee and his lawyers are working closely with the Texas Attorney General.

Q:Does the Texas Attorney General represent me in this bankruptcy?

A: The Texas Attorney General cannot by law serve as your private attorney and represent you individually. He does have authority under the Texas Deceptive Trade Practices Act to seek to recover monies lost by all identifiable consumers and is appearing in the bankruptcy court for that purpose.

Q:What will happen if I do nothing right now?

A: Your right to any refund owed will be preserved by the Texas Attorney General’s claim. If the company’s records reflect that you had any amount held as settlement funds, you will receive a refund of that amount, up to $2,425.00, shortly after the court approves the settlement and rejects any duplicate claims filed by customers.

Q:Can you explain some of the bankruptcy terms?

A: Definitions of some frequently used terms are:

Debtor:is the name used to identify the bankrupt entity, which in this case is Debt Relief USA.

Trustee: means the court-appointed individual who is charged with overseeing the administration of the debtor and paying the claims of creditors. The Trustee in this case is Mr. Robert Newhouse.

U.S. Trustee: is the Division of the United States Department of Justice charged with responsibility for overseeing all case trustees (such as Mr. Newhouse) and serving as a watchdog over all matters taking place in all bankruptcy cases.

Chapter: The Bankruptcy Code is published in Volume 11 of United States Statutes Code, which includes all federal laws passed by Congress. Title 11 (dealing with bankruptcy) is divided into chapters (like any book), and Chapter 7 of the Bankruptcy Code deals with liquidations of an entity, as contrasted with a reorganization of the entity found in Chapter 11. Debt Relief USA is in a Chapter 7 bankruptcy.