As I was watching the news the other night, I saw this commercial for CareOne Credit. The name rang in my head – and then it hit me: I had recently read about them in a case while doing some research Since the judge’s observations in that case and his comments were stuck in my head – and since I am seeing these commercials more and more - I thought I would share them here.
The Case
In late 2006, Debra Wood was struggling with debt – and after apparently seeing an ad, she contacted CareOne Credit Counseling. When she contacted CareOne, she was referred to Consumer Law Associates, LLC (CLA). CLA then gave her documents to start her into a debt management plan – which would be administered by Ruther and Associates, LLC (RA). They describe themselves as a “national law firm dedicated to consumer debt reduction.” As the facts of this case unfold, you’ll see what that description is inaccurate – at best.
Debra’s agreement provided for a 60 month debt repayment program and included a boatload of various fees – everything from early termination fees and monthly service fees. But this was not credit counseling – this was a debt management plan – something that my readers here know I am not a fan of at all.
Why? Because they fail. They are a joke. They waste time and money – and usually end up putting people exactly where they try and avoid being: bankruptcy. But by the time they are in bankruptcy, they are poorer than they needed to be.
The CLA/RA plan called for Debra to make monthly payments into a trust account – and then when there was sufficient funds, RA would contact a creditor and try and negotiate a deal. Yet, as my regular readers know, while this is going on, consumers can get sued by the creditors – and that’s exactly what happened to Debra.
In early 2008, CLA advised her she could file for chapter 7 and quoted her a fee of about $2,000. She didn’t have the money on hand – so CLA advised her they could take it out of the money they were holding for her trust account with RA. Eventually, she received a refund of some of the money in that account, less a $150 “closing fee.”
The Chapter 7 Case
RA contacted a Robert Willette, a Kansas lawyer to represent Debra in a chapter 7 case to be filed in Kansas. The attorney of record didn’t consult with Debra – he left that to one of the three staff of attorneys who know bankruptcy law at RA. He also had no real role in the preparing of the bankruptcy filing. RA paid Willette $400, of that amount he then paid $50 to another local attorney who covered the meeting of creditors.
Debtor’s attorneys are required to disclose their compensation by filing a statement – also referred to as a Rule 2016 statement. That statement also has to identify whether the compensation is shared with anyone. The statement was prepared by RA, signed and filed by Willette and disclosed his compensation in the total amount of $ 1,998.00 – with no mention that anyone else was getting paid.
At some point prior to the case being filed, Willette determined that Debra’s recent loss of her job would justify the filing fee in her case being waived. He prepared the official form to waive the filing fee – and stated that she had paid him $600 in legal fees – not the $400 that Willette ultimately testified that he received from RA, and not the $1,998 that was disclosed on the 2016 statement. That same 2016 statement also disclosed that the $299 had been collected and paid.
In essence, the disclosure of compensation reflected that $299 was collected, and the application to waive the filing fee disclosed that Debra could not afford it. These discrepancies raised a host of issues which compelled the Bankruptcy Court to hold a hearing.
The Court’s Ruling
First, there was an issue with the 2016 disclosure: it was false. It did not disclose the fee sharing arrangements. It disclosed that the $299 filing fee was paid, and it did not accurately disclose who was paid what.
Second, that $1,998 did not buy Debra much. There was a $300 cost deposit (whatever that should be for a routine chapter 7 is unknown to me), and the $299 filing fee along with a $1,399 legal fee. But the fee agreement (and it’s unclear whether Debra actually signed it), did not include post-petition services, hearings, lien avoidance matters, reaffirmations, or audits, among other services.
There wasn’t any evidence to reveal what might be considered an average fee in Debra’s area – but Willette testified that he would charge a “non RA client” between $600 and $800 for a client (a reminder to my Massachusetts readers: this isn’t Kansas). So it’s fair to assume that Debra was overpaying at best, and at worst, getting gouged by the entity that she originally turned to for help to get out of debt.
Third, and perhaps even worse, RA and CLA were likely practicing law without a license. While the Court did not believe that entering into a debt management plan is necessarily practicing law without a license, the Bankruptcy Court suggested that it might violate other local consumer protection laws. The Bankruptcy Court also expressed this concern worth repeating:
Especially troubling is the provision of “help-line” services by the Ruther Entities for Kansas bankruptcy clients to call and receive advice concerning their Kansas bankruptcy cases from either non-lawyers or non-Kansas lawyers. It is hard to see how this is not the practice of law. If the lawyers answering the help line are not Kansas-licensed or admitted in this District, they engage in unauthorized practice of law.
So in this case, Debra got her discharge and her filings fees waived. But she also ended up overpaying for bad service. The attorney’s fees were also denied. Ruther and Associates, LLC, Consumer Law Associates, LLC and another “firm” Persels & Associates, LLC were ordered to disgorge all of their fees.
Why Am I Writing About This?
I was doing research on one of these entities. Interestingly, I could only find one reported case about these particular parties – of course, that could mean that I am not using the right search terms with my legal research database. It could also mean that they only got caught once. Yet the facts of this case are particularly egregious. None of the lawyers seem to be adhering to some real basic rules about how we do our job, and some real easy rules about how we need to do our job in the bankruptcy system. And those rules exist to protect the consumers who need the relief that the bankruptcy system offers.
And all of this makes me wonder – with all of these new commercials hitting the airwaves… how many other Debra’s are out there paying more than they need to to get the debt relief they deserve and are entitled to? After all – someone is paying for those commercials.
In re Wood, 408 B.R. 841 (Bankr. D. Kan. 2009) (Docket no. 08-12333)
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- The Insider View of Friendship
- Massachusetts Debt Collector Gets Sanctioned by Florida Bankruptcy Court
- Preferences: What are they?
- Why Bankruptcy Lawyers Require Fees Before Filing
- WhatsaMatta with WaMu?
Tags: attorneys, CareOne, Consumer Law Associates, Consumer Protection, Credit and Debt, Debt Settlement or Consolidation, Discharge of Debts, LLC, Petition Preparers and Fees, Ruther and Associates
Unfortunately, the author is confused between credit counseling and debt settlement. What is being described here is a debt settlement plan, which is correctly described as ineffective, expensive and destructive. However, it was labeled as a debt management program which is a service of legitimate credit counseling organizations. The summary:
Credit counseling/debt management through a charity = Good
Debt settlement plans = Bad
By the way, the commercial described was for a debt management program that may be administered by a charity or by a for-profit company. CareOne has developed relationships with for-profit debt settlement companies also, which is what this client was apparently enrolled into.
Actually, the “author is [not] confused” between” the two. I wrote about what was reported in a bankruptcy court decision out of Kansas (and the cite is provided). As to your other remarks as to what relationships CareOne has allegedly developed and with whom, we have no information one way or the other to confirm that statement, and nothing is referenced in the US Bankruptcy Court’s findings of fact and rulings of law.
I’ve much experience helping clients who have been victimized by companies offering debt management plans. I encourage you to spend more time on this blog – and check out the archives. You will see that I understand the distinction between debt management plans through an established non profit consumer credit counseling agency and one pretending to be such.
Thanks for participating in the discussion.
-Bill McLeod
CAREONE IS A RIP-OFF THEY DO NOT HELP ANYONE.
[This comment has been edited by McLeod Law Offices, PC. A portion of this comment was deemed inappropriate and was deleted.]
Oh, why do I even bother to comment? Really Bill, your terminology is indeed mistaken. Debra was involved in a Debt Settlement Program, yet you claim she used a Debt Management Program? Is this deliberate? Anyone wondering, go directly to the Care One website & read about the differences in the programs for yourself. Care One offers both.
Oh…if only I could assume that you were not being a shill for Care One. As I said in my prior comment, I reported on the case itself – and I relied on those facts.
Fact: The court found: “Sometime in late 2006, Debra Ann Wood found herself in difficult financial straits. After seeing a television ad, she found her way to CareOne Credit Counseling, a business that, according to its website, provides debt consolidation services. When she contacted CareOne, a representative referred her to Consumer Law Associates, L.L.C. (“CLA”). CLA, in turn, provided Wood with documents to enable her enrollment in a debt resolution plan (DRP) to be administered by the law firm of Ruther and Associates, L.L.C. (“R & A”), described in the documents as ‘a national law firm dedicated to consumer debt reduction.’”
The terms “debt settlement program” and “debt management program” are no where to be found in the court’s ruling. That being pointed out, I cannot imagine the need you have to raise your peculiar claim that my “terminology is indeed mistaken.”
You ask “why do I even bother to comment?” Well, you’re trying to keep the communication going – which is always welcome here. But really, it would appear that your comments are motivated by a desire to divert attention away from the simple facts of the case I wrote about: that Debra contacted CareOne, got ripped off, and there’s a court decision that talks about it. And as an FYI – I’ve included the decision above (click the link on the case name at the end of the article).
Again, thank you for participating in the discussion.
-Bill
All of this could have been so easily avoided. People need to know that they can get out of their financial situations by declaring bankruptcy, Instead of putting their trust into these shady, unscrupulous “debt relief whatever” companies.
I think Debra probably would have been better off meeting with a bankruptcy attorney – but I’m willing to bet that something was telling her that by calling Care One, she was doing what she thought was the right thing. I’ve heard that many times from people who have tried outfits and programs like this only to end up in bankruptcy and even poorer.
Of course, an argument could be made that attorneys like us are “debt relief whatever” companies (the Supreme Court seems to think so)…but I’m really beginning to question that.
-Bill
Bill, my need to point out that your terminology is mistaken is to accurately represent the facts to your readers. There is a big difference between debt management & debt settlement. We can agree on this: Debt Settlement Plans are BAD & a person considering such a solution would be better served with bankruptcy.
I’m happy to learn that we can agree that debt settlement plans are bad. So we’re clear – a debt settlement plan is structured by a third party establishing an account, where a consumer makes regular deposits and debts are settlement when – and only when – the account has sufficient funds to satisfy the settlement. While the contract between Debra and R&A states one thing, pages 3-4 of the opinion explain how the program worked…and it smacks of a debt settlement program. So if it walks like a duck…
However, I encourage you to point out to me – and to my readers – precisely where my terminology was incorrect – which will give me the opportunity to explain, respond or correct. It’s very important that my readers not be misled.
Again, I thank you for visiting and discussing this important issue –
-Bill
I’m in Oregon and have been paying $262 a month to CLA since spring of 08′(2yrs). I’ve had little help, and have an appointment with an arbitrator this Friday morning April 9th. If there were any way I could get my money back I’d do it in a heartbeat! I was duped into signing up by Bobby Barnett a smooth talking salesman in Texas. His company was called “Debt —–” and they apparently sent my file to CLA in Portland Oregon.
I am in the process of getting out of a debt settlement plan through Consumer Law Associates. I’m not in the finance business so I’ll admit that my own naiveté was partly to blame but I also believe I was ill-advised to sign with this plan. Originally it was through Debt America but I was told that my state (MN) requires any debt settlements be handled by a lawyer so they partnered with CLA. They pitched this plan to us saying that we would be debt free in three years. We paid them $900/month for about a year in which time they settled one of the smaller debts but we had been receiving law suit documents from the bigger creditors. CLA told us we didn’t have enough money in our account to settle the larger debts even though to date we had paid out nearly $12,000. They then suggested that we strongly consider Chapter 7. So how’d they go from “sign with us, stop making payments on your credit cards, pay us $900/month and you’ll be debt free in three years” to “you better file chapter 7″ in less than a year?
Apparently their motto should be: “Here at CLA we’re happy to take your money while you are financially at your most vulnerable and after we feel we’ve made enough off of you then we MIGHT be able to help but don’t count on it. Have a nice day!”
Like I said I’m in the process of terminating this relationship and I don’t know what kind of refund, if any, will be on the table. But as far as I’m concerned, Consumer Law Associates is a crooked organization as is any company who partners with them. I don’t know if what they’re doing is unlawful but it surely is unethical. The Better Business Bureau gave them an “F” rating. Just google Consumer Law Associates…you’ll have a hard time finding any favorable comments.