Bankruptcy Judge Approves Reorganization Plan for US Fidelis
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Bankruptcy Judge Approves Reorganization Plan for US Fidelis

July 31, 2012


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This week, a federal bankruptcy judge approved a reorganization plan that would pay almost $27 million to the creditors of US Fidelis, a company that fell into bankruptcy after allegedly selling thousands of hollow vehicle-service contracts.

Towards the end of 2009, investigators accused US Fidelis of selling vehicle protection coverage that was completely worthless to thousands of consumers, according to a report from the St. Louis Post-Dispatch.

In an effort to recover some money for consumers, the company was spun into bankruptcy court, and U.S. Bankruptcy Judge Charles Rendlen told sources that the plan was a victory for the 625,000 consumers who bought protection plans from the company.

Sources say that the plan secures a payment of $14.1 million for a special fund that is designed to compensate consumers for their losses. The fund will be controlled by the attorneys general in each of the affected states.

Before putting his stamp of approval on the plan, Judge Rendlen had to receive approval from most of the creditors, as well as the attorneys general from 29 states and the District of Columbia. The vast majority of creditors were more than willing to approve the current deal.

Three consumers from California, however, who were hoping to file a class action lawsuit against the company, did object to the plan, because it would grant immunity to a subsidiary of US Fidelis that financed most of the firm’s service contract purchases.

This financing outfit, Mepco, would have been vulnerable to a class action lawsuit if the bankruptcy court had not approved the current restitution agreement. However, sources note that by agreeing to the current deal, consumers are much more likely to receive prompt payments, because a class action lawsuit could have lasted for several years.

Moreover, even if the plaintiffs in the class action lawsuit won the case, US Fidelis and Mepco would likely spend a significant portion of their remaining assets on the bankruptcy case, leaving little money for consumers with real grievances.

So the lawsuit will likely be shelved, but according to the Assistant Attorney General of Texas, the current plan will put "the most possible dollars in the (hands of) the most possible people in the shortest amount of time."

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