Know Your ABCs: Assignments For The Benefit Of Creditors

When a business is in financial trouble, many think bankruptcy is the only path forward. The reality is there are many things a struggling business or its creditors can do to try and right the ship. At Hanson & Payne, LLC, we work with business owners, creditors, and lenders in the Milwaukee area who need legal counsel to stay afloat. One commonly used, but not commonly understood tool is an assignment for the benefit of creditors, which is abbreviated as an ABC. Sometimes they are also called receiverships. 

What Is An Assignment For The Benefit Of Creditors?

According to Black’s Law Dictionary, an ABC is a transfer “of a debtor’s property to another person in trust so as to consolidate and liquidate the debtor’s assets for payment to creditors, any surplus being returned to debtor.” If you are thinking “that sounds a lot like a Chapter 7 bankruptcy,” you are correct. ABCs work a lot like Chapter 7 bankruptcies, but ABCs are a creature of state law. 

Why Not File For Chapter 7 Bankruptcy? 

Some people choose to go through the ABC process instead of filing for Chapter 7 bankruptcy because they believe it is quicker, and therefore cheaper. Whether this is true really depends on the specific situation the debtor is in. 

There is also a belief that assets will sell higher through the ABC process because it doesn’t carry the same stigma as a bankruptcy. Once again, this depends on the situation at hand. 

A growing number of debtors do not choose to go through the ABC process, but are pushed into it by their creditors. Under federal bankruptcy law, it typically takes three unsecured creditors to force a debtor into involuntary bankruptcy. Under Wisconsin’s ABC statute, which is in chapter 128, a single secured creditor can file a petition for an involuntary ABC. This makes the process very appealing to secured creditors. 

What Happens After A Case Is Filed? 

Once an ABC is filed, a receiver is appointed. The receiver takes responsibility for running the debtor’s business. They typically search for some who will buy the business as a going concern, and if that fails, they wind down operations and sell off individual assets. 

Hanson & Payne’s experienced attorneys provide legal counsel in these cases. We make sure the business and financial deals struck by the parties involved are not held up by legal issues. 

A Business-MInded Legal Team In The Milwaukee Area

Whether you are a business owner, creditor, or lender, you need reliable legal counsel if you are going to be involved in an ABC or a bankruptcy. Hanson & Payne LLC is a business-minded team of attorneys you can count on to advise you if you are in a difficult financial situation. We are located in Milwaukee, but handle cases across the state of Wisconsin. Please contact us today to schedule an initial consultation.