Define: Assignment For Benefit Of Creditors

An assignment for the benefit of creditors (ABC) is a legal arrangement in which a debtor voluntarily transfers their property or assets to a third-party assignee, who then liquidates the assets and distributes the proceeds to creditors in accordance with their priority rights. This alternative to bankruptcy allows the debtor to efficiently settle their debts outside of formal bankruptcy proceedings. The assignee, often a trusted individual or a professional fiduciary, manages the liquidation process and ensures equitable distribution of proceeds among creditors. ABCs are governed by state law and may offer certain advantages over bankruptcy, such as reduced costs, faster resolution, and greater flexibility in asset distribution. However, the effectiveness of an ABC depends on the cooperation of creditors and the debtor’s willingness to fully disclose assets and liabilities.

An Assignment for Benefit of Creditors (ABC) is a legal process in which a debtor voluntarily transfers their assets to a third-party assignee, who then liquidates those assets and distributes the proceeds to the debtor’s creditors. This process is an alternative to bankruptcy and allows the debtor to avoid the formal court proceedings and costs associated with bankruptcy.

The ABC process is governed by state law and requires the debtor to execute an assignment agreement, transferring their assets to the assignee. The assignee then takes control of the assets and assumes the responsibility of liquidating them in an orderly manner. The assignee must act in the best interests of the creditors and follow the instructions provided by the debtor in the assignment agreement.

Once the assets are liquidated, the assignee distributes the proceeds to the creditors according to a predetermined priority scheme. Typically, secured creditors are paid first, followed by unsecured creditors. Any remaining funds are then returned to the debtor.

The ABC process provides several advantages for both debtors and creditors. For debtors, it allows them to avoid the stigma and public scrutiny associated with bankruptcy. It also provides a more flexible and cost-effective alternative to bankruptcy proceedings. For creditors, the ABC process offers a quicker and more efficient way to recover their debts compared to traditional bankruptcy proceedings.

However, it is important to note that the ABC process may not be suitable for all debtors. It requires the debtor to have sufficient assets to cover their debts, and it may not provide the same level of protection and discharge of debts as bankruptcy. Therefore, debtors should consult with legal professionals to determine if an ABC is the right option for their specific circumstances.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March, 2024.