AmeriDebt Files for Bankruptcy

Credit-counseling company AmeriDebt (search), charged by federal regulators with using deceptive marketing to bilk hundreds of thousands of customers, filed for bankruptcy Saturday, the company announced.

Christine Kraly, a spokeswoman for the Germantown, Md.-based company, said the filing for Chapter 11 protection in theU.S. Bankruptcy Court (search) in Greenbelt won't affect AmeriDebt's current operations.

The company said payments made by its customers are processed through a separate trust account that won't be affected by the bankruptcy filing.

Kraly declined to comment further, but in a statement released Saturday, the company said: "AmeriDebt's first priority is and always has been serving its consumer clients. As such, we recognize that the protections afforded by Chapter 11 are vital for the uninterrupted continuation of these services."

In November, AmeriDebt became the first credit counseling company to have a federal lawsuit filed against it. Minnesota, Illinois and Missouri are among five states that have filed separate lawsuits against the company.

"We have pursued companies in the past that have gone the bankruptcy route and recovered money for consumers, so we're going to hang in there as long as it takes," said Scott Holste, a spokesman for the Missouri attorney general's office.

AmeriDebt touts itself as "the friend of consumers in crisis," but the Federal Trade Commission (search) alleged the company hid fees and didn't educate people about how to get out of debt.

Regulators said AmeriDebt made customers think that an initial fee would be part of their debt-reduction payments to creditors. Instead, it went to AmeriDebt.

AmeriDebt has disputed the FTC's characterization of the company, saying it provides educational services to customers. It says the payments cited by the FTC are "voluntary contributions."

The FTC charges that AmeriDebt marketed itself as nonprofit, but actually works to make money for affiliated for-profit companies. The agency also said the company's radio and television ads said AmeriDebt helps customers learn better financial management skills.

AmeriDebt laid off most of its workers in October and stopped seeking new customers as of Nov. 1 because of what it called "negative publicity" and to focus on serving its existing clients. The company also stopped all advertising.

AmeriDebt said it has worked with 400,000 people and had more than 90,000 current clients as of July.

Each year, an estimated 9 million Americans have some contact with a credit counseling agency — often the last stop before a bankruptcy filing.