Assignment for the Benefit of Creditors

AuthorDavid J. Cook
Assignment for the Benefit
of Creditors
The Short Story
An assignment for the benefit of creditors enables a distressed business the
opportunity to liquidate its assets, pay secured creditors and taxes, and dis-
tribute the proceeds, if any, to the creditors. Assignments are very old, but
superseded by bankruptcy given that bankruptcy offers the automatic stay,
court supervision, subpoena powers, a specialized forum with a judge who
can render a money judgment, and greater transparency.
In an assignment, the debtor voluntarily transfers its assets to a neutral
third party with the directions to liquidate the assets; pay secured, admin-
istrative and priority creditors; and distribute the remaining funds to the
unsecured creditors. Depending on the state, an assignment is private; it is
not a judicial proceeding and it lacks any judicial supervision.
Legal Basis
Common law and statutory law, depending upon the state. Most assignment
law arises from the law of contracts and trusts.
When Do I File a Claim?
The dates are established by the Assignee for the Benefit of Creditors (ABC),
which can range from 30 to 90 days, unless set by state statute. The assignee
sends out a notice with a due date, but prudence dictates filing a claim as
soon as possible.
What Does It Mean to File a Claim?
Use personal delivery, overnight services, USPS Express mail, and maybe
fax. Get proof of receipt. Email is unlikely, but don’t hesitate to try. Getting
the claim filed on time is important.
How Do I Locate the Filing?
This is very difficult. The assignee, or maybe the debtor, might send out
notice, but notice might go to bank lock boxes or old addresses. You have
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to call. Be insistent. Assignment are not public filings. Don’t expect notice
from a public venue.
What Do I File?
The ABC might demand that you use its form of proof of claim, which closely
resembles the forms used in bankruptcy court. Be very thorough in calcu-
lating the amount, which would include the principal, interest, attorney’s
fees, and court costs. Attach everything. Support the claim in great detail
and support any claim of security, including a security interest, mortgage or
deed of trust, or other.
Do I Get Accruing Interest?
Yes, for secured claims. Yes, for unsecured claims if the estate is solvent. No,
for unsecured claims if the estate is insolvent.
Do I Need to Update the Claim?
Yes. It is a common error to presume that the assignee will ask for updates
or that the assignee will calculate interest if the estate is fully solvent.
Who Gets the Claim?
The assignee, but prudence dictates sending the proof of claim to the
assignee’s attorney.
What Should I Include?
Everything. Leave nothing out. Thoroughness now will prevent you from
attempting to locate paper documents a year later.
Are There Privacy Issues?
Redact social security numbers, driver’s license numbers, bank account
numbers, and other clearly private information. Delete any personal
What Should I Expect from the Assignee (and When)?
You might or might not receive an acknowledgment at all unless you provide
a self addressed, stamped envelope or deliver the claim through a courier
or counter service. Confirm receipt. It is a common error to assume without
cause that the assignee actually got the claim.
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