While many financially troubled businesses are opting for Chapter 11 to help them restructure their business so they can keep their business going and retain their business assets, Chapter 11 bankruptcy reorganization may not be the right solution for all businesses. Business owners who are not planning on staying in business and want to liquidate business assets without added time delays and costs under formal bankruptcy may opt for an assignment for benefit of creditors instead.
What You Should Know About Assignments for Benefit of Creditors
Here is what you should be aware of if you do choose an assignment for benefit of creditors:
- An assignment for benefit of creditors is not for owners who want to stay in business.
- It does not stay creditors from attempting to collect a debt against you.
- It does not discharge any debt until you have repaid the debt in full.
- What it does allow you to do is avoid filing a formal bankruptcy.
- The assignment for benefit of creditors is a vehicle for you to transfer title and control of your assets to a trustee/assignee, who is a neutral third party.
- The assignment gives the trustee/assignee the power and authority to sell your assets and pay off your creditors.
- Any judgments or liens filed after the assignment cannot attach to the assets that are held in trust by your designated trustee/assignee.
- If the trustee/assignee believes that operating your business for a short time is the right thing to do to increase the value of the assets, the trustee can do so. Such determinations may depend upon whether the trustee/assignee needs any state licenses to operate or to liquidate business assets.
How it Works
At the time of the assignment, the business owner must turn over all business investment records and books listing assets and liabilities as of the date of the assignment, a list of creditors and their contact information and any other outstanding debt to the trustee/assignee. The trustee/assignee must record the assignment with the Clerk of the Circuit Court in the county where the business is located or the business owner resides. The trustee/assignee must publish a notice for three consecutive weeks in a newspaper of general circulation in the county where the proceeding has been filed notifying creditors of the appointment of the trustee/assignee.
It is the responsibility of the trustee/assignee to notify all your creditors and other parties of interest including government taxing authorities. The trustee/assignee must have the business assets appraised, including any real estate, and prepare an accounting for submittal to creditors and the Court. There should be a date established for creditors to file claims. The Court will authorize the sale and sale terms. The sale may be private. The Court will review claims and allow or disallow the payment of the claims.
Indiana Bankruptcy Attorney Assistance
If you are a distressed business owner and need advice about getting out of debt, you should contact an Indiana bankruptcy attorney. The attorneys at Walton Legal Services can discuss Chapter 11 reorganization and bankruptcy options including an assignment for benefit of creditors as well as other options to find the best solution for your business debt problems.