Since the new bankruptcy laws went into effect in 2005 consumers filing for Chapter 7 or Chapter 13 bankruptcy are required to go through a government-approved credit counseling program within six months before they file for bankruptcy protection. Credit counseling can take place in person, over the phone, or online. The credit counseling session will last about 90 minutes and will include an analysis of their personal budget, including income, expenses and current debt. The credit counseling organization is allowed to charge a reasonable fee for services which is usually in the $50 range depending on location, services offered, and administrative costs. Credit counseling organizations approved by the government are required to waive the fee for anyone who cannot afford to pay. After completing their credit counseling session, consumers must get a certificate of proof. Some credit counseling organizations charge extra to receive the certificate proving that the session was completed. For the current list of government approved credit counseling agencies, visit: http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm

AmeriDebt Inc was the first credit counseling company to have a federal lawsuit filed against it.   It was the FTC’s largest case involving deceptive credit counseling and debt management.

In November 2003, the Federal Trade Commission (FTC) charged AmeriDebt, DebtWorks Inc and Andris Pukke, the founder of the two companies had deceived consumers with claims that AmeriDebt was a nonprofit organization and that it provided counseling services to consumers seeking to get out of debt. FTC claimed that AmeriDebt did not operate as a nonprofit organization as advertised. Instead it funneled profits to affiliated for-profit entities and individuals, including DebtWorks and Pukke. Without providing any counseling services, it simply enrolled every customer in a debt management plan. Although it claimed that no up front fees would be charged, AmeriDebt used the first payment made by the clients under the plan as its own fee. The FTC charged AmeriDebt with deceptive practices and also with violating the Gramm-Leach-Bliley Act by failing to provide consumers with required privacy notices.

In June 2004, AmeriDebt filed for bankruptcy relief in the U.S. Bankruptcy Court for the District of Maryland. The Bankruptcy court appointed a trustee to oversee AmeriDebt. In March 2005, AmeriDebt Inc and the FTC entered into a settlement. AmeriDebt agreed to shut its debt-management operations. The settlement requires AmeriDebt to transfer all current clients’ accounts to a third party and bars the company from participating in any aspect of the credit counseling business in the future. The settlement does not include the other defendants – the FTC’s case against Andris Pukke, DebtWorks, and the relief defendant, Mrs. Pukke, will continue.

AmeriDebt shut down its operations by transferring all existing plans to a third party. The bankruptcy trustee has already taken steps to transfer AmeriDebt’s existing plans to a reputable credit counseling agency.

In 2006, Andris Pukke agreed to return up to $35 million to consumers.

On September 9, 2008, the FTC started mailing 460,000 checks worth a total of about $20 million to consumers burned by AmeriDebt. Consumers won’t receive all the fees collected by AmeriDebt or its affiliated credit counseling agencies. The restitution disbursement signals the end of the AmeriDebt saga.