Assignment for the Benefit of Creditors
3 Points to Review Before Choosing an ABC Over Bankruptcy

An assignment for the benefit of creditors ends with empty rooms and a final report. Obligations the owner guaranteed can outlive both, and the choice between an ABC and bankruptcy turns on that survival rather than on speed or privacy.

A New Jersey owner carrying stacked MCA debt will hear the assignment praised as the quieter exit, a private liquidation without federal schedules or a trustee. The praise describes the atmosphere around the proceeding. It says little about which creditors must pause, which claims receive payment, or which signatures remain exposed when the assignee closes the file.

Steps the owner takes, or does not take, before the assignment decide what the assignee inherits. The points below follow the order in which mistakes occur.

What an Assignment Transfers

An ABC is a creature of state law in which the assignor conveys business assets to an assignee who liquidates them and distributes the proceeds to creditors under court supervision. The Florida framework, a useful exemplar because its provisions were retrieved in full, gives the court power to enforce the chapter, allow or disallow claims, set priorities, approve sales outside the ordinary course and compromises, and approve the assignee's final report, distributions, and fees. Those powers describe a supervised liquidation, not a release.

In 2024, Florida restated the provisions relied on here, so the date on the proposal matters as much as the state named in its caption. An owner should ask which assets would enter the estate, what cooperation the assignee will require, and which contracts need separate consent before any buyer is discussed. The ledger the assignee opens on the first day will govern every later argument about what was sold and for how much.

First Point: The Stay an ABC Does Not Create

The federal courts overview of reorganization and the stay explains that a bankruptcy filing triggers an automatic stay in most cases, subject to exceptions and relief the court may grant. Owners carry that expectation into every alternative, and the assignment proposal rarely corrects it. That comparison, honestly made, is the entire decision.

An ABC appoints a manager for the liquidation. Patience on the creditors' side must come through separate negotiation or an order of a different court.

Under the Florida statute limiting actions against the assignee and estate assets, no action lies against the assignee except as the chapter provides, and specified enforcement against estate assets in the assignee's possession, custody, or control is restrained. The restraint is fenced on both sides: a consensual lienholder enforcing rights in its own collateral proceeds anyway, and police power actions continue. A secured MCA funder with a lien position, if the documents support one, belongs on the side of the fence the shield does not cover, though the documents, if we are being precise, support less than the funder's letter claims.

Most proposals that praise an ABC as private and painless were drafted by someone engaged to administer it. Rarely does a proposal name, creditor by creditor, the authority that obliges each one to wait. Any assurance the owner gives a creditor, even briefly, can outlive the proceeding it was meant to calm, because a calm that rests on no cited provision lasts only as long as the creditors' goodwill, which the assignment itself tends to shorten.

Second Point: The Discharge Only a Bankruptcy Court Can Enter

The federal courts explanation of the bankruptcy discharge states that the discharged debtor is no longer legally required to pay, through a permanent order prohibiting collection on discharged debts. The quotation comes first; everything about the assignment reads against it. Chapter 727 provides for distribution of what the assets produce. No section of the chapter supplies a discharge order, and the order releasing the assignee from its duties answers a different question under a similar name.

A guarantee drafted in order to survive the company's liquidation does that. Owners learn this after the sale, when the deficiency letter arrives at the home address. I have yet to see an assignment cure a guarantee problem, though proposals keep implying that one will. Whether speed favors the assignor or the creditors is a question the proposal will not ask.

Forgiven balances can carry tax consequences as well, with bankruptcy and insolvency exclusions available only under stated requirements, a point the Internal Revenue Service guidance on canceled debt confirms. Counsel and a tax adviser should map that exposure before the owner treats a shortfall as the end. The file closes when the court approves the final report; personal liability ends only where a signed release states the terms.

Third Point: The Statute Behind Every Promise

Assignment procedure, availability, and effects vary by state, and Florida is one exemplar rather than a national template. The retrieved provisions set a bar date of 120 days for proofs of claim seeking a dividend, require court approval before the assignee operates the business beyond 45 calendar days, and prescribe mailed notice for proposed actions, per the Florida provisions on court supervision and claims. None of those figures travels across state lines on its own.

No case law on MCA funder challenges to assignments was reviewed for this article, so that matchup stays inside counsel's engagement letter. Whether another state's court would match the scope Florida's shield carries is a question I cannot answer from this desk. Counsel should review and analyze the proposal against the actual chapter of the filing state before the owner treats an exemplar as a promise.

Debt relief company Delancey Street offers a free confidential initial review of MCA concerns, and a business weighing liquidation can use that review to test whether negotiated resolution remains practical before surrendering control. The company provides debt settlement services and coordinates legal matters with independent counsel. It is not a law firm, and it does not administer assignments. Ask the adviser to ensure that any settlement comparison reflects the entire creditor picture.

When the assignee closes the ledger, the entries should match the notices creditors received and the orders the court entered.

The Measure of Either Exit

Cost belongs in the comparison alongside relief: professional fees, storage, operating losses during the proceeding, and the funds needed to pursue or defend the guarantees that survive it. An inexpensive liquidation that leaves the owner bound is not the bargain its invoice suggests.

A first call with Delancey Street costs nothing and assumes nothing; it begins a diagnosis while counsel measures the formal routes against the obligations that will remain. The exit worth taking is the one the owner can explain to a creditor, to a court, and to the person who signed the guarantee. That audience outlasts every proceeding.