What is an assignment for the benefit of creditors?
An assignment for the benefit of creditors is a state law alternative to bankruptcy. Article 2 of the New York Debtor & Creditor Law specifies the procedures and requirements for an assignment for the benefit of creditors. It involves the assignment by a debtor to an assignee of all of the debtor’s property pursuant to a written assignment agreement. The assignee then collects and liquidates the property and satisfies creditor’s claims in accordance with the procedures specified in the Debtor & Creditor Law. The New York Supreme Court has jurisdiction over the proceeding. Unlike some states where they are regularly used, assignment for the benefit of creditors is a rarely used device in New York. One draw back with it, compared to bankruptcy, is that there is no nationwide automatic stay created by the commencement of the case. However, in certain circumstances the overall costs of administration may be cheaper than in a bankruptcy case thereby resulting in a greater return to creditor
An assignment for the benefit of creditors (or ABC) is a state law process for the orderly liquidation of the assets of a business. The process is similar to a liquidation under chapter 7 of the Bankruptcy Code in a number of respects. However, whereas federal law controls the bankruptcy process, the law of each state controls how the assignee manages the liquidation and distribution to creditors.
