Assignment for the Benefit of Creditors: 7 Things It Does That Bankruptcy Does Not

An assignment for the benefit of creditors liquidates the business. It does not forgive it.

That distinction organizes everything that follows. The ABC transfers company assets to an assignee who sells them and distributes the proceeds under state court supervision, which resembles bankruptcy closely enough to invite confusion and differs from it in every protection that matters to the owner. The seven points below use Florida’s Chapter 727 as the working exemplar, since its text is complete and current, while the law of the filing state controls any actual case. (Statutes amend, and counsel in the filing state confirms the current text before advising reliance on any section number below.)

1. A State Proceeding Rather Than a Federal Case

An ABC lives entirely inside state law, with no petition under the Bankruptcy Code, no federal judge, and no meeting of creditors under federal procedure. The Florida court enforces the chapter, sets and revisits the assignee bond, allows or disallows claims with their priorities, approves sales outside the ordinary course and compromises of controversies, approves the final report with interim and final distributions, and approves the fees of the assignee and retained professionals, which together supply supervision approaching a federal case without conferring any federal remedy.

The assignor selects this path by contract and conveyance rather than by petition, and that choice determines which courthouse answers every later question. Counsel in the filing state maps the local requirements before the transfer documents are signed, since defects in commencement follow the estate through distribution.

2. A Limited Shield Instead of an Automatic Stay

A bankruptcy filing generally triggers an automatic stay with statutory exceptions, while an assignment creates nothing of that breadth. The Florida shield of section 727.105 bars actions against the assignee except as the chapter provides, and bars levy, execution, or attachment against estate assets in the assignee’s possession, custody, or control. The shield (which protects estate assets in the assignee’s hands, and which stops no governmental enforcement action brought under police or regulatory power) does narrower work than its name suggests, and a consensual lienholder enforcing rights in its collateral stands entirely outside it.

Secured lenders read the carveout first and the shield second, which tells the owner where the protection actually runs. Resist the urge to treat the assignment filing as a payment moratorium. That is the boundary the statute draws, and creditors with collateral rights cross it lawfully the week after the assignment they ignored.

3. A 120-Day Bar Date for Dividends

Creditors who wish to share in the distribution must file a proof of claim with the assignee within 120 days of the petition filing, and the statutory form notice states the consequence plainly: no timely filing, no dividend. Steps the creditor takes, or neglects, before that date decide the creditor’s recovery without further hearing. Simply calendar the bar date from the petition filing stamp, since the deadline is extremely unforgiving and counsel cannot reconstruct a missed one from good intentions.

Counsel ensures the proof of claim is timely and documented. Owners accustomed to bankruptcy practice should prove and defend the claim amount with the same rigor, since allowance and priority under the chapter turn on the papers filed rather than the relationships behind them.

4. A 45-Day Limit on Continued Operation

Forty-five days after the assignment, the assignee’s authority to keep conducting the assignor’s business expires unless the court extends it. The statute permits continued operation beyond that window only upon notice and hearing where the extension serves the best interest of the estate, with at least twenty-one days mailed notice covering the proposed operation alongside sales, compromises, and fee requests. Do not assume operations continue normally, even briefly, past day forty-five without court approval.

Rarely does the assignee operate the business past the statutory window without returning to court. Day forty-six arrives whether or not the motion is ready.

5. Distribution Without a Discharge

Most owners hear assignment and think absolution. The confusion is natural. Only a bankruptcy discharge order releases personal liability and permanently enjoins collection, in the language of the federal discharge basics, while Chapter 727 provides for distribution of whatever the assets yield and nothing resembling that injunction.

The assignment was valid. The guarantee survived it.

6. Assignee Avoiding Powers Bounded by State Law

The resemblance between the assignee and a bankruptcy trustee is close enough to mislead. The court powers of section 727.109 empower the assignee to enforce turnover of estate assets, to test and contest the validity, priority, and extent of liens, to subordinate or avoid unperfected security interests in the assignee’s capacity as lien creditor, and to avoid conveyances void or voidable by law. Whether a bankruptcy trustee would reach the same transfer on the same facts is a question the assignee’s counsel answers case by case.

The powers run parallel for a reason, and they stop at the state line for the same reason. Fraudulent transfer law, lien creditor status, and turnover procedure take their content from state enactments rather than the Code, which makes the resemblance extremely instructive and leaves it bounded by the chapter that created it.

7. A Different Map in Every State

Florida’s chapter is one exemplar among many, and other states assign different duties, deadlines, and effects to the same device. Availability, procedure, and consequences are all state specific to a degree that defeats generalization, which is why counsel must confirm the filing state’s statute rather than importing Florida’s numbers into a Delaware or California matter. The device is extremely state specific, and comparisons across states require separate citations for every row.

Delancey Street is a debt relief company rather than a law firm, and where private negotiation offers a viable alternative to assignment, its confidential initial review examines the commercial facts while independently licensed counsel assesses the courthouse options. Delancey ensures the commercial record behind any settlement alternative is complete before funds move. Counsel compares the statutes, maps the deadlines, and builds the record that lets the owner choose between assignment and filing with open eyes.