Legal Question in Bankruptcy in California

Re: claim of money in account

First, I can almost guarantee that Debt-Relief USA is not FDIC insured. They are not a bank, but rather are a debt negotiation firm. The funds you gave them may be deposited into FDIC insured bank accounts, but the accounts are in the name of Debt-Relief USA, and the banks who hold them have not failed (thus, there is no FDIC claim to be had).

I'm not sure if you have reviewed or received any information about their bankruptcy. A quick internet search found an article about their bankruptcy here - http://www.dallasnews.com/sharedcontent/dws/bus/stories/062409dnbusdebtrelief.3bc5f20.html.

The article says that you should be receiving written instructions from the company soon, and that you can go to the company's website for more information. The company originally filed chapter 11, which means that in theory they were going to continue operating and continue working on client files. The money you have paid them theoretically is still in the bank, but on June 24, 2009, the Court converted the case to chapter 7, meaning the court is going to liquidate all of the assets of the company, and repay its creditors (of which you are now one) what it can. You will receive a notice from the bankruptcy court about the conversion to chapter 7, and probably instructions to file what is called a "Proof of Claim." Make sure you do that, and do it properly, or you may get nothing back.

My concern for you is two-fold. First, you probably will lose a substantial portion of what you have paid them, if not all of it. Second, you have no real way of determining what, if any deal they had negotiated with your creditors. You need to get on the phone with each of your creditors, and see if they had negotiated a deal yet, or if you are just in default. The way these firms work, as I understand it, is they collect money from you each month, but let your credit cards go into default. When you are so far into default that the credit card companies write your balance off, they negotiate for pennies on the dollar. Here, obviously, they were not setting aside sufficient funds to pay their obligations, and are now being wound-up in bankruptcy. The only good news is that the company, and pressumably its principles, are under investigation for their activities.

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