What Can You Do When Your Adoption Agency Goes Bankrupt?

Adopting a child can require years of effort and huge financial expenses, with no guarantee that all your efforts will turn out successfully. It’s a lesson that thousands of hopeful parents are learning after the sudden bankruptcy of a large, national adoption agency.

In early February, California=based Independent Adoption Center — which had offices in nine states– abruptly shut down after going bankrupt, throwing a wrench into 1,886 pending adoptions around the country.

Families from California to Connecticut, and many places in between have expressed their frustration, anger, and sadness over being left out in the cold by the sudden closure of a company in which they had invested so much time, effort, money, and hope.

Dashed Dreams

Image courtesy of Courtesy of the family

Jeff and Erin from Indiana are one of these families. The couple tells Consumerist they worked with IAC for more than two and a half years, paying thousands of dollars in the process, only to find themselves without an adoption agency.

“We even moved to the suburbs due to their recommendation for better schools to better attract a birth mother,” says Jeff.

The family tells us they paid fees totaling more than $9,000 to IAC, but that amount is in addition to all the other costs for things like background checks, health checks, and marketing expenses.

Beyond the financial costs, Jeff and Erin invested seemingly countless hours in the process, hosting a home visit, doing individual and joint interviews, attending an adoption workshop, and muddling through all the paperwork for the various background checks and physical examinations.

Finally, after moving from Indianapolis to the suburbs on IAC’s suggestion to attract more potential birthmothers — who IAC says were “identifying our city with bad neighborhoods and bad schools” — a social worker from the agency completed a new home study on Jan. 28, 2017.

“We had scheduled to send a check to the agency for having our new home approved, in the mail on Tuesday, Jan. 31, 2017,” Jeff says. “But we received the shocking and life-changing email from our adoption agency stating that they were declaring Chapter 7 Bankruptcy and were closing permanently effective immediately.”

Offering A Reason

Image courtesy of IAC

The Independent Adoption Center is a 34-year-old company based in California with offices in nine cities: Atlanta, Indianapolis, Los Angeles, Raleigh, San Francisco, Houston, New York, Stamford, and Tampa. Or at least it was until that first week in February, when it emailed clients saying it was closing its doors as of Jan. 31.

“Societal changes have created an environment in the United States where there are fewer potential birth parents than at any other point in our 34-year history of helping to create families,” IAC said in a statement on its website. “Simultaneously, due to changing demographics and the closure of international adoption programs, there are more hopeful adoptive parents seeking to adopt domestically than in any other time in recent history.”

The company adds that though it worked “tirelessly to adapt to this changing environment,” its efforts were “ultimately unsuccessful.”

“We therefore cannot sustain the agency any longer,” the center said, adding that bankruptcy court will determine how much, if any, refunds will be paid to its clients, some of whom have spent tens of thousands of dollars on adoption fees and other expenses.

What Happens Next?

Image courtesy of dannysoar

Unfortunately, it’s unlikely that Jeff and Erin and the other thousands of families will get their money back from IAC, Colleen Quinn, President of the American Academy of Adoption Attorneys, tells Consumerist.

She points out that two years ago, IAC’s financial documents listed about $5 million in assets, whereas the bankruptcy filings now list only $57,000 in assets.

Her organization has mobilized to provide a list of adoption attorneys who, at the very least, can help guide these hopeful parents toward the next steps at a reduced cost, or possibly at no cost.

“Many of these people, of course are devastated; those that were in the middle of an adoption and have actually gone ahead and sent in the bulk of their funds to do the adoption,” Quinn says. “For many of them, it was their whole adoption nest egg. Twenty or thirty thousand that is now down the drain.”

So what should families like Jeff and Erin’s do next?

1. File a proof of claim

Despite the fact that clients are unlikely to get their money back, Quinn advises IAC clients to file a proof of claim [PDF] so they can be on record with the trustee for the case, and will then have a direct link to the official person that is supposed to be taking possession of all IAC’s property.

Given the listing of assets versus liabilities, attorneys have been letting people know that there isn’t much chance they’ll get any of their money back. By at least sending in a proof of claim, however, they’ll be on record and receive notifications when anything happens in the bankruptcy proceedings.

2. Check out the IRS’ adoption tax credit

IAC clients should look into whether or not they can take the federal government’s adoption tax credit. It likely won’t cover all the lost funds, but it’s better than nothing.

According to the Internal Revenue Service, as long as the child is a resident of the U.S., you can apply for the tax credit, even if the adoption fails.


However, there’s a limit on the credit, depending on a family’s modified adjusted gross income (MAGI). For tax year 2016, a family with a MAGI of at least $201,920 will see their adoption tax credit reduced. A family with a MAGI over $241,920 can not receive the credit.

3. Contact the Department of Social Services

Many of IAC’s clients are concerned about getting their documents returned, Quinn notes, because they don’t want to have to repeat those efforts over again if they try to set up another adoption. Many of them had approved home studies — like Jeff and Erin — and now want to find out if they can get those documents back, and find out if they still use them.

To that end, Quinn suggests that IAC clients contact the department of social services for the state where the office they worked with was located. When IAC went bankrupt, it should have turned in its license, giving DSS control over all those documents, so the agency could be of assistance in trying to track down paperwork.

That won’t guarantee that another agency will accept another’s home study, Quinn says: Though many are voluntarily trying to do so, some of them need their state’s DSS to give approval first.

4. Stay in touch with what’s happening in the bankruptcy proceedings

IAC’s creditors are meeting at the U.S. Trustee office in Oakland, CA, on March 14. This get-together should provide clients with a better understanding of what’s going on, so affected families who attend in person might be able to get their questions answered.

But because most people can’t necessarily drop everything and head out to California, Quinn says there are several Facebook groups for clients of IAC (including this one).

She encourages people to use those groups to stay in touch with the case, and share information. That way, if others go to the meeting of the creditors, they can then report back to the rest of the group.

How Can This Be Avoided?

Image courtesy of Markus Reinhardt

If you’ve been thinking about trying to adopt a child or are in the process with another agency, you might be worried this could all happen to you. That’s a concern Quinn says she and her colleagues share, as they try to tackle the question of how to better protect client funds.

She suggests doing your homework on the agency: Are they licensed, are they regulated, what do their financial statements look like? However, she points out, that might not have been helpful in the case of IAC, which again, had about $5 million in assets two years ago.

Some agencies might not charge placement fees at all. For example, a representative for Adoption STAR tells Consumerist there is no application fee, and that no portion of the placement fee is due until match or placement.

“Fees are reimbursed if an adoption does not work out,” the rep explains.

Another option for potential parents — including those stymied by IAC’s recent closing — is to consider a direct placement — known as a parental, independent, or private adoption, depending on where you live. Why? In general, they’re less expensive, Quinn says.

In addition, clients aren’t sending large sums of money to an agency to hold. In a direct placement, a private attorney — who is bound to obey state bar rules — for the adoptive parents is paid separately. Adoption attorneys have malpractice insurance, as well as state trust fund regulations that provide coverage if they abscond with any funds.

Quinn cautions that although direct placements may be less expensive, they can require a heck of a lot of footwork. Some families may be too busy to engage in the kind of networking necessary to find and match with a birth mother, and others are simply very private.

There’s also the foster-to-adopt route, which is generally very low-cost, or even free, due to state subsidies that follow many placed children until they’re 18. There are fewer newborns available in foster care, which might be one reason some adoptive families seek other means.

According to a report from the U.S. Department of Health and Human Services, Administration for Children and Families, Children’s Bureau [PDF], there were 427,910 children in foster care as of Sept. 30, 2015 (the most recent information the bureau has available.) The average age was 8.6 years, with about 7% of children in foster care under the age of one.

The Children’s Bureau offers more information on how to foster-to adopt.

Though it all comes down to preference, Quinn says she is now warning her clients that if they’re looking to use an adoption agency, to have the agency give them some method by which their money will be protected — either in an insured escrow account, or there could be a surety bond on it — some way that they know their money is going to be safeguarded.

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