This is a topic that comes up often with our clients, and it prompted me to put this article together. The fact pattern is simple, even if the answer isn’t, and it comes up in two situations.
The first involves debt settlement companies. A company is properly servicing a consumer in a state where the company is permitted to do business. The consumer then moves to a state where the company does not do business, or cannot do business. What does the company do? Does it keep servicing the consumer, or does it transfer the file?
The second involves attorneys, and the structure is similar. An attorney licensed in State A is providing debt settlement services to a consumer there, relying on State A’s attorney exemption. The consumer moves to State B, where the attorney is not licensed and therefore would not fall within State B’s attorney exemption. What does the attorney do?
These look like the same problem. They are not, quite. The first is about who can be a debt adjuster where. The second is about who can practice law where. But the analysis tracks closely enough that the two questions are worth treating together. There is no court decision squarely on either fact pattern, and very little written on either, so what follows pulls together the statutes, the most relevant case law, and how reputable players actually handle this in practice.
I. What happens when a consumer being serviced by a debt-settlement company relocates?
The structural point that drives this section is that state debt settlement statutes apply based on where the consumer lives, usually at the time of contracting. The Uniform Debt-Management Services Act, adopted in roughly a dozen states (including Colorado, Connecticut, Delaware, Maine, Nevada, Rhode Island, Tennessee, and Utah), says it cleanly. The act does not apply if the provider has no reason to know the consumer resides in the state at the time of the agreement, and a provider may not work with someone it should know resides in the state unless registered there. UDMSA §§ 3, 4(a) (2008). New Jersey reads its statute the same way: only licensed entities may perform debt adjustment services for New Jersey residents (Department of Banking and Insurance Bulletin 08-13, July 28, 2008).
When the consumer moves and the company can no longer service that consumer under the destination state’s law, the original agreement is not retroactively undone. It was made lawfully with a resident of the home state and was governed by the law of that state at the time. The consumer’s later move does not unmake the original deal.
What it does change is the company’s ability to keep performing. Once the consumer is a resident of the destination state, the destination state’s statute is in play, and the company’s ongoing conduct (collecting and holding consumer funds, negotiating with creditors, administering settlements) is now being performed for a resident of that state. If the company is not licensed there, is not an exempt nonprofit, and is not an attorney, there is no doctrinal hook for continuing.
New Jersey is the sharpest example because of the consequences. The Debt Adjustment and Credit Counseling Act defines debt adjustment broadly enough to capture nearly anything a debt settlement company does for a consumer (N.J.S.A. 17:16G-1(c)(1)), limits the licensing track to nonprofit social service agencies and nonprofit credit counseling agencies, and treats unlicensed activity as a fourth-degree crime under N.J.S.A. 2C:21-19(f), with civil penalties under N.J.S.A. 17:16G-8 alongside. Other states with similar restrictions include Hawaii, North Carolina, and Louisiana. But the same logic applies more generally. If the company cannot operate in the destination state, then continuing to perform there is the same thing as performing there without a license, regardless of how the relationship started.
There is a counterargument worth addressing. In a pure UDMSA state, the trigger is “at the time it agrees to provide the services,” which one could read to mean only the original moment of contracting matters. There is some force to that point in UDMSA states, but it has limits. New Jersey and the other activity-prohibition states are not UDMSA states, and their statutes reach the performance of services for residents, not just the contracting with them. Every fee charged after the move is consideration for a continuing service, which functionally renews the agreement in installment form. And even where the textual argument is at its strongest, the act’s legal services carve-out plainly does not help a non-attorney company.
So what can the company actually do? The cleanest move is to transition the consumer. Hand the file to a permitted destination-state provider, refund unearned fees consistent with the federal Telemarketing Sales Rule’s fee-proration framework, and give the consumer notice. JG Wentworth’s public disclosure, which says that for consumers in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC, and VT it may connect them with a law firm in the destination state, is a useful model. The second option is to restructure, where the company takes an ancillary role (software, payment processing, enrollment) and a permitted destination-state lawyer or nonprofit takes over the actual client work. That can be lawful, but the line between a real attorney-led engagement and a license-rental arrangement is real, and Morgan Drexen (resolved 2016, with $132 million in restitution and a $40 million civil penalty), along with the pending CFPB action against Strategic Financial Solutions (S.D.N.Y. filed January 2024), are warnings that regulators will draw that line. The third option, when transition is not available and a clean restructure is not either, is simply to stop performing in the destination state, refund unearned fees, and help the consumer find replacement help.
A note on the federal layer. The Telemarketing Sales Rule sits on top of everything in this section. Its 2010 amendments brought debt relief services into scope (16 C.F.R. § 310.2(o)) and impose an advance fee ban: no fees until at least one debt is settled and the consumer has made a payment under the settlement (16 C.F.R. § 310.4(a)(5)). The TSR neither preempts state debt adjustment statutes nor authorizes for-profit debt adjustment in states that prohibit it. A TSR-compliant fee structure says nothing about whether the company can operate in the consumer’s new state at all. That distinction is regularly elided in industry materials, and it shouldn’t be.
The practical playbook for debt settlement companies is as follows. Treat current residence, not residence at the time of contracting, as the controlling forum for ongoing services. Keep a state-by-state matrix of permitted providers and back it up with internal compliance, not just a customer-facing disclosure. Stay away from faux-attorney workarounds, because the enforcement record there is now substantial. And pre-script the wind-down so cancellation, refunds, transfer of held funds, and creditor notifications are part of a documented playbook rather than something improvised under pressure.
II. What happens when a consumer being serviced by an attorney relocates?
The attorney scenario begins in similar territory but lands somewhere different, so the structural point here is different too. State attorney exemptions are written for attorneys licensed in that particular state. New Jersey’s exempts an “attorney-at-law of this State” (N.J.S.A. 17:16G-1(c)(2)(a)). New York’s credit services exemption covers someone “admitted to practice law in this state” (N.Y. Gen. Bus. Law § 458-b(1)(b)). Neither exemption, on its face, covers an out-of-state lawyer. That asymmetry drives this section.
The home state’s interest fades when the consumer leaves. The agreement was lawful when made, the licensing or exemption hook was satisfied, and fees collected so far are clean. The home state can still enforce against the attorney for past conduct, but it does not have an active licensing claim simply because the engagement is still running.
The destination state is where the risk lives. Once the consumer establishes residency there, the destination state’s statute is in play, and the continuing work (calls and letters to creditors, settlement drafting, advice about debts, collecting installment fees) is conduct rendered for a resident of that state. The leading case is Appell v. Reiner, 43 N.J. 313 (1964): an out-of-state lawyer who negotiates compromises with creditors of an in-state debtor is practicing law in the debtor’s state, even if the lawyer is sitting in the home office while doing it. The recent Appellate Division decision in Anchor Law Firm v. State, A-0052-23 (N.J. App. Div. May 9, 2025), repeats the point and lists the activities that count as the practice of law in this context, including negotiating with a creditor on behalf of a debtor and advising a debtor about how to lawfully compromise debts.
That answers half the question. The other half is whether the destination state’s attorney exemption covers a lawyer who has just become an out-of-state lawyer relative to that destination state. Usually it does not, for the structural reason set out above. So even if the lawyer is permitted to engage in temporary multijurisdictional practice under Rule 5.5(c)(4) of the rules of professional conduct (which expressly extends to clients previously represented by the lawyer, per Comment 14), the lawyer can still be an unlicensed debt adjuster under the destination state’s substantive statute. The two regimes are independent. Satisfying one does not satisfy the other. This is the point most easily missed.
If continued representation in the destination state would violate the destination state’s law, Rule 1.16(a)(1) requires the lawyer to withdraw, since “other law” includes the destination state’s debt adjustment statute. Withdrawal under Rule 1.16(d) means giving the client reasonable notice, helping arrange substitute counsel, transferring the file and any held funds, and refunding unearned fees.
The practical answer depends on where the consumer moved. If the destination state has no debt settlement statute, or a broad attorney exemption that reaches non-resident lawyers, and Rule 5.5 is satisfied, the attorney can probably continue. If the destination state is a UDMSA state, the lawyer needs registration or has to fit the act’s legal services carve-out (UDMSA § 2(7)), and the answer there varies by state. If the destination state is New Jersey or one of its peers, the attorney exemption simply does not extend to out-of-state lawyers, and the only sensible move is to transition the matter to a permitted local provider.
There is one open question worth flagging here. Anchor‘s holding that the New Jersey exemption reaches attorneys “lawfully practicing in this state” arguably leaves room for the modest inclusion of out-of-state attorneys engaged in temporary practice under Rule 5.5(c)(4). But the statutory text, which speaks of an “attorney-at-law of this State,” cuts the other way, and no court has worked through the conflict. Until one does, the cautious approach is to assume the text controls.
The attorney’s practical playbook tracks the debt settlement company’s, with some attorney-specific additions. Address relocation in the engagement letter at the outset, specifying that the representation is premised on the consumer’s residence in the home state and that a material move may require transition to local counsel. Track residence as a separate field in the case management system, distinct from contact information. Build referral relationships in the restricted states (New Jersey, Hawaii, North Carolina, Louisiana) and in the UDMSA states. If continuing under the temporary practice safe harbor, document the analysis at the time, including expected duration. And refund unearned fees when withdrawing, because both the TSR and Rule 1.16(d) require it.