Assignment for Benefit of Creditors vs. Chapter 7 Bankruptcy

Assignment for benefit of creditors is also called general assignment, or abbreviated to ABC. It is generally referred to as an alternative to bankruptcy. An ABC involves a company assigning all of its assets to a third party who takes title to the company’s assets in trust, then will sell those assets and distribute the proceeds of the sales to the company’s creditors in priority as determined by Florida State law under 727.114 – pack lunch, it’s a long read. While this might sound like a Chapter 7 liquidation bankruptcy, there are some key differences in how the two processes are conducted and in their end results.

  • And ABC does not discharge a company’s debts. Full stop. Only a bankruptcy fully discharges all debts at the end of the procedure.
  • There is no automatic stay of collections actions or lawsuits which would be covered by the automatic stay in a bankruptcy. These actions may continue and new actions may be filed or initiated.
  • Board and shareholder approval is generally required for corporations since it involves transferring the entirety of the company’s assets and property. LLCs, LLP’s, partnerships, and sole proprietorships may have an easier time entering into a general assignment.
  • The assignee acts much the same way as the US trustee, however the assignee is selected by the company that is liquidating, and the US trustee is appointed by the court. Consequently the disposition of property and payment of creditors can be accomplished without court approval.

When a liquidation is in the company’s best interest, the initial impulse is to get it over with as fast as possible. However this may not be in your company’s best interest, though it may be in the best interests of your creditors. Assignees are generally picked for their knowledge of that specific area of business, and maybe trusted above the US trustee in disposing of assets with an eye to getting the highest dollar value for them. There are also no asset exemptions allowed under a general assignment. Filing for Chapter 7 may be more expensive, and take a little longer, but there are also protected asset classes that cannot be attached by creditors when undergoing a filing of bankruptcy.

As you can see, this ABC is not as easy as 123. Filing for bankruptcy is not easy either, and the process can take longer than a general assignment. Before considering an assignment for benefit of creditors in order to settle your company’s debts, I would urge you to take advantage of a free consultation at Van Horn Law group. Bankruptcy is not a dirty word, and you may even end up the better for it in terms of obtaining credit in order to open a new business and start over. Being able to shed all of your company’s debts after emerging from bankruptcy, will leave you free and clear. Give us a call, and we can figure out what is best for you and for your business.

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Chad Van Horn

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