How an Assignment for the Benefit of Creditors Can Provide a Swift Alternative to Bankruptcy
When a business faces mounting debt and dwindling resources, the first option many owners think of is bankruptcy. While bankruptcy can be an effective solution in some cases, it isn’t the only one available. In New York, an assignment for the benefit of creditors (ABC) can often provide a faster and more efficient way to handle financial distress.
At Todd E. Duffy, PLLC, we help clients address financial challenges and consider alternatives to bankruptcy, including an assignment for the benefit of creditors. We guide individuals and businesses through the steps necessary to resolve debt responsibly, while protecting creditor relationships and preserving value.
Our attorney is committed to providing clear explanations of the process, the potential outcomes, and the rights of all parties involved. Located in New York City, contact us today to discuss how we can help you explore options for resolving your financial obligations.
What Is an Assignment for the Benefit of Creditors?
An assignment for the benefit of creditors is a state-based process that allows a financially troubled business to transfer its assets to an independent third party—called an assignee—who’s responsible for liquidating those assets and distributing the proceeds to creditors.
Unlike bankruptcy, which involves federal court oversight, the ABC process is governed by state law. In New York, it’s recognized as a voluntary alternative that allows a business to wind down its operations in an organized and transparent way. Once the assignment is made, the assignee steps into the shoes of the business and assumes control of its assets and obligations.
How an ABC Differs From Bankruptcy
While both an ABC and bankruptcy address insolvency, the methods and procedures differ significantly. Bankruptcy operates under federal jurisdiction, with mandatory filings, court hearings, and strict procedural rules. The process often takes months or even years to fully complete.
An ABC, on the other hand, proceeds under state law, usually with fewer formalities and a faster timeline. The absence of ongoing court supervision can reduce costs and delays. The business voluntarily assigns its assets, rather than being compelled by a court to do so, and this voluntary nature often allows for a smoother transition and more cooperative participation from creditors.
An ABC also provides privacy that bankruptcy doesn’t. Bankruptcy filings are public record, while ABC proceedings may involve less public exposure. For some business owners, maintaining discretion can be a key consideration.
Why a Business Might Choose an ABC
Companies may turn to an assignment for the benefit of creditors for several reasons. The ABC process typically appeals most to business owners who want to resolve their financial situation quickly and responsibly without the formality and cost of bankruptcy. Some of the primary reasons a business might choose an ABC include:
Efficiency: Since it’s handled outside of federal court, the ABC process typically moves faster than traditional bankruptcy proceedings.
Lower costs: With fewer procedural requirements, legal and administrative expenses are typically reduced.
Transparency: ABC proceedings provide creditors with a clear view of how the business's assets are managed and distributed.
Flexibility: The assignee can structure asset sales and settlements to align with the unique circumstances of the business.
Each of these factors can make an ABC an attractive option for a business that’s ready to close its operations but wants to avoid the lengthy bankruptcy process.
An Overview of the ABC Process in New York
In New York, the ABC process begins when the business owner (the assignor) executes a written assignment of assets to a selected assignee. The document identifies the property being transferred and confirms that the assignee is authorized to administer the estate.
After the assignment is executed, the assignee will need to file it with the county clerk where the business is located. From there, the assignee will take possession of the assets and begin liquidation. This often involves selling inventory, collecting accounts receivable, and resolving any claims or disputes related to the assets.
Once the business's assets are liquidated, the assignee will distribute the proceeds in accordance with New York state statutory priorities. Secured creditors are paid first, followed by priority claims such as taxes and wages, and then unsecured creditors. The goal is to achieve an equitable distribution based on available funds.
Throughout this process, communication between the assignee and creditors is essential. Creditors can submit claims and receive updates as the liquidation progresses, and working with experienced legal counsel can help you provide the correct documentation and resolve any disputes that might arise.
Duties and Responsibilities of the Assignee
Throughout the ABC process, the assignee acts as a neutral fiduciary, representing the collective interests of all creditors. This position requires careful handling of asset sales, negotiations, and distributions. The assignee must act in good faith and with transparency, reporting on the estate’s progress and maintaining accurate records.
For creditors, the assignee’s involvement offers reassurance that their claims will be handled in accordance with state law. For the debtor, it provides a structured way to settle their obligations and move forward.
In New York, attorneys or financial professionals with experience in liquidation processes often serve as assignees. Their ability to evaluate assets, negotiate sales, and administer distributions efficiently is central to the success of the assignment.
When Bankruptcy Might Still Be Appropriate
Although an assignment for the benefit of creditors can provide a practical solution for many businesses, it isn’t the right choice for everyone. Bankruptcy may still be necessary in some situations, particularly when:
The business needs protection from aggressive creditor actions, such as foreclosure or lawsuits.
There’s a need for a formal discharge of business debts.
The financial situation involves highly secured creditors or disputes that require judicial resolution.
The business seeks to reorganize rather than liquidate.
In these cases, bankruptcy provides legal protections that an ABC doesn’t offer. For example, the automatic stay in bankruptcy halts creditor actions immediately, giving the debtor time to restructure or liquidate assets under court supervision. At Todd E. Duffy, PLLC, we can help you determine which path aligns best with your financial goals.
How to Protect Your Business Relationships During a Transition
One of the often-overlooked advantages of an ABC is the ability to maintain professional relationships. Because the process is less public than bankruptcy, it allows for a quieter, more controlled wind-down.
For businesses that rely on long-term relationships with vendors, clients, or investors, this privacy can make a meaningful difference. By handling the process respectfully and efficiently, owners can preserve goodwill even as they close one chapter of their business operations. Owners who conclude their affairs responsibly may find it easier to re-enter the market later, free of unresolved debt obligations.
The Impact of an ABC on Your Credit Record
Bankruptcy filings appear on the public record and your credit report for several years, which can potentially affect your future borrowing capacity. However, an ABC, while not entirely without consequence, typically has a more limited effect on an individual's or business’s long-term credit profile. Since the process operates under state law and isn’t a court judgment, it may not carry the same long-term visibility.
Act Promptly When Filing an ABC
Timing is critical when considering an assignment for the benefit of creditors. Waiting too long to act can limit available options, as asset values may decline or creditor actions may escalate. Businesses facing insolvency should assess their situation early and seek guidance to determine whether an ABC or bankruptcy offers the most constructive option.
Acting promptly allows the assignee to preserve the value of your business, organize distributions efficiently, and reduce the risk of litigation. It also grants business owners greater control over the process, allowing them to participate in decisions that affect closure and settlement.
Reach Out to an Experienced New York Bankruptcy Attorney Today
If your business is facing financial distress, an assignment for the benefit of creditors can provide a practical and efficient alternative to bankruptcy. By addressing your obligations responsibly, maintaining transparency with creditors, and preserving value where possible, you can often close down operations in an orderly manner while minimizing disruption.
At Todd E. Duffy, PLLC, we guide clients through these options, explaining how ABCs and other debt resolution strategies may impact their rights and financial responsibilities. Located in New York, New York, we serve clients throughout Brooklyn, Queens, the Bronx, Staten Island, and New Jersey.
If you’re considering alternatives to bankruptcy and want to explore your options for resolving debts efficiently and fairly, contact us today to schedule a consultation.
