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Assignment for the Benefit of Creditors Is an Alternative to Small Business Bankruptcy


The statistic that fewer than half of new businesses continue to operate five years after they were founded if your small business is part of the majority, where the business closes in less than five years without ever having become profitable.  The task remains of closing down your business and settling your debts.  You have the right to file for bankruptcy protection if you cannot pay your debts, as does every business and every individual, but sometimes you can get the same debt relief without going through the entire bankruptcy process in federal court.  Assignment for the Benefit of Creditors (ABC) is a process of closing your business and settling its debts that does not involve the court system.  ABC is one of the many instances where businesses should hire lawyers.  If you are struggling with debts because a company that you founded is going out of business, contact a Philadelphia debt relief lawyer.

Liquidate Your Business Assets and Settle Your Debts Without Going to Bankruptcy Court

Assignment for the Benefit of Creditors (ABC) occurs when a company that is going out of business, known as a distressed company, signs over its assets to another company, known as the assignee.  The process begins when the distressed company and the assignee sign an ABC agreement.  The assignee then communicates with creditors to which the distressed company owes outstanding debts.  The assignee liquidates the assets transferred to it pursuant to the ABC agreement and uses the proceeds to pay the creditors.  There is not enough money from the sale of the distressed company’s assets to pay every creditor the face value amount of the debt that the distressed company owed it; if there were, the company would not be distressed and would not be going out of business.  The assignee settles the debts with the creditors in the same order of priority that the bankruptcy court uses in chapter 7 bankruptcy cases, in other words, secured creditors get paid before unsecured creditors.  If there is any money left from the liquidation after all of the participating creditors have settled the debts, then the distressed company’s shareholders get the remaining money.

The biggest difference between ABC and a bankruptcy filing is that ABC does not involve the court.  Everything takes place in lawyers’ offices and according to the timetable set by the distressed company, the assignee, and the creditors.  Therefore, ABC accomplishes the same goals as chapter 7 bankruptcy for a business, but it does so faster and at a lower cost.  Another reason that some business owners choose ABC instead of bankruptcy is that the proceedings of the bankruptcy court are a matter of public record.  People who plan to open another business after closing the current one do not want the bad publicity associated with a business bankruptcy filing.

Contact CONSUMERLAWPA.com About Settling Business Debts

A Philadelphia consumer law attorney can help you with ABC and other debt settlement options.  Contact CONSUMERLAWPA.com to set up a free, confidential consultation.



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