Assignments for the Benefits of Creditors
An assignment for the benefit of creditors is similar to a chapter 7 bankruptcy. The proceeding begins with the voluntary transfer of assets for liquidation to an assignee chosen by the debtor, which may be subject to the approval of a secured lender. The assignee and the debtor enter into an assignment agreement, transferring title and possession of assets into a trust. In some states, the assignee files a complaint in the state court to initiate or complete the assignment proceeding.
The assignee serves as a fiduciary, with a duty owed to act in the best interests of creditors. The assignee's duties are similar to a bankruptcy trustee, and include collecting the assets and reducing them to money. The assignee may conduct the business of the assignor for limited period. The assignee sets a claims bar date, reviews claims for their validity and priority, and files a final report and makes distributions to creditors. The process may move more quickly than a bankruptcy, as fewer court appearances may be required.
The assignment or the secured lender(s) may dictate how sales will proceed. The buyer will receive an assignee bill of sale, which likely won't guarantee that title is free and clear. Because this area of the law is not well-developed in some states, practices may vary widely.