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Debt management company files bankruptcy after investigations

When a debt management company promises help that sounds miraculous and asks for a substantial fund upfront prior to doing anything, the interested person should see a red flag. It would be wise to first research the company and check its rating with the business bureaus. For example, at this time no entity in Arkansas or elsewhere can eliminate student loan debt or make it go away, except in very limited circumstances within a bankruptcy filing upon proof of undue hardship.

One company, however, did promise just that, but it ended up being investigated by authorities and recently filed for bankruptcy relief itself. The Student Aid Center, Inc. recently filed a Chapter 7 bankruptcy, listing less than $1 million in assets and between $1 and $10 million in liabilities. Apparently, this and various other companies have been profiting by offering basically nonexistent solutions to students. State and federal agencies have been chasing down many of these companies and investigating them for deceptive business practices.

According to the Minnesota Attorney General's Office, the Student Aid Center was offering incredible promises to students, such as telling them that it would get them into loan forgiveness programs, that it would "take over" or "pay" borrowers' loans and that students would come out of the program with no more student loan debt. The company took retainers from students to sign them up with government programs that were free, according to authorities. Inevitably, however, consumers realized that they had gotten nothing for the funds paid, which led to many complaints.

In addition to official investigations, consumers who purchased the company's services filed several class actions against the business. With that kind of multi-leveled pressure, a poorly capitalized company like this one turned to its only alternative way out, i.e., the filing of its own bankruptcy. To the extent that the company and its owners are unable to discharge debt that was incurred as a result of willful misconduct, they may retain some hefty obligations to consumers, including some in Arkansas, that cannot be erased in bankruptcy.

Source: marketwatch.com, "Company accused of preying on student loan borrowers files for bankruptcy", Jillian Berman, Feb. 12, 2016

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