Legal collection giant Mann Bracken LLP, at the firm's request, will be placed into receivership and liquidated rather than filing for bankruptcy protection, according to Montgomery County (Md.) Circuit Court officials.

Early this year, Collections & Credit Risk reported that an estimated 20,000 to 25,000 collection lawsuits filed in Maryland were set to be dismissed as a result of Mann Bracken collapse. Maryland District Court Chief Judge Ben Clyburn's office said his move to dismiss the lawsuits came after learning the firm had notified district court clerks across the state that it was shutting down.

Mann Bracken's troubles follow the November bankruptcy filing and liquidation of affiliate Axiant LLC. That company's Chapter 11 filing revealed it owes Mann Bracken more than $10.5 million, making the firm Axiant’s largest unsecured creditor. Axiant provided phone, computer and staffing and support services to Mann Bracken. In late December, Axiant's bankruptcy plan was converted to Chapter 7 liquidation.

According to a cease-and-desist order by Maryland's Collection Agency Licensing Board, Mann Bracken filed motions in some of its cases last month stating that Axiant’s failure left the law firm unable to handle litigation. The cease-and-desist order says the state began investigating Mann Bracken on Jan. 4 after hearing from consumers who were unable to contact the firm because its phones were disconnected. Mann Bracken also had stopped cashing collection checks.

Mann Bracken was under pressure from lawsuits, as well. In Washington, D.C., the Better Business Bureau had given the firm its lowest rating and several lawsuits accused it of using illegal tactics against borrowers whose bills had fallen into default. Mann Bracken is based in Rockville, Md. but has 24 offices nationwide.

Maryland regulators, hoping to help former Mann Bracken clients, last month mailed letters to 1,400 licensed collection agencies in the state this week, instructing them to help connect debtors with the companies they owe, Regulators Order Collection Agencies To Curb Mann Bracken Fallout, Jan. 22.

The law firm was formed in 2007 by the merger of three of the five largest collection firms in the country, including legal giant Wolpoff & Abramson LLP. The three firms’ non-legal support services were consolidated into Axiant.

As a formality, Maryland Commissioner of Financial Regulation Sarah Bloom Raskin suspended Mann Bracken from performing any collections work. The suspension follows an investigation by Raskin's office that confirmed the firm already had stopped doing business - including failing to cash checks sent to the firm concerning collection-related issues. "This is yet another in a string of problems we are uncovering as the collections industry has made a headlong rush for our state's courtrooms," Raskin says.

In December, the state's Collection Agency Licensing Board concluded an investigation of large Mann Bracken client, Encore Capital Group of San Diego and its subsidiaries - Midland Funding LLC, Midland Portfolio Services LLC and Midland Credit Management Inc. Under terms of a settlement, the companies agreed to pay $1 million in civil penalties, become licensed collectors in Maryland and change their business practices. In September, Collections & Credit Risk reported the state's DLLR said the companies had violated federal and state laws by refusing to validate bad debts when challenged.

Encore Capital is the third-largest debt buyer in the U.S. with more than $240 million in revenue from purchased debt in 2008, according to research conducted by Collections & Credit Risk.

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