What Is An Assignment for the Benefit of Creditors?

creditorAn assignment for the benefit of creditors (ABC) is a method of liquidating an insolvent small business. It works particularly well for an LLC or corporation that has a large number of assets and significant liabilities. An ABC works as an alternative to a business owner trying to settle with creditors his- or her or filing bankruptcy.

Business owners choose the ABC route because it frees them from having to put the time and effort into settling their businesses debts when they need to move on to profitable ventures. It also allows them to avoid the stigma of bankruptcy.

To use this method, the business owner contracts with an ABC company. The ABC Company takes over the whole process and the business owner is free to focus on other endeavors. For local business owners interested in ABC, a bankruptcy attorney in New Jersey can answer any questions.

Once the ABC Company is employed, the business owner transfers all of the business assets and liabilities to the ABC Company. The ABC Company will usually investigate whether the company can be sold as a whole. For example, an electronics store or restaurant may be an attractive purchase both for their locations and inventory. If the business as a whole is not valuable enough to sell, the ABC Company will sell off its assets. Assets can also include intellectual property.

The ABC Company sends letters to all creditors notifying them that it has taken over. The creditors file claim forms against the ABC Company. Then, the ABC Company sells off the company’s assets and pays the creditors with the proceeds. The ABC Company’s fees are taken from the asset-sale proceeds.

The process takes an average of six months. Once completed, it wipes out all of the businesses obligations; however, it does not wipe out personal debts guaranteed by the owner. New Jersey bankruptcy attorneys can provide detailed information on how an ABC differs from bankruptcy for an individual situation.

There are situations where bankruptcy is preferable to an ABC liquidation. To determine this, attorneys at Wasserman Jurista & Stolz P.C. analyze client’s financial situations to determine the overall impact of each process. In either case, the goal is to wind down the insolvent enterprise with minimum time and expense.