Frequently Asked Questions

What is an Assignment for Benefit of Creditors?

An ABC is a California state law alternative to federal bankruptcy for closing businesses. The business owner (the assignor) transfers all business assets to an independent professional (the assignee), who liquidates the assets and distributes the proceeds to creditors in priority order. It is faster, cheaper, and more private than Chapter 7 bankruptcy.

How is an ABC different from Chapter 7 bankruptcy?

In Chapter 7, a federal trustee is randomly assigned by the court. In an ABC, the business owner selects the assignee. Chapter 7 is a federal court proceeding with public filings, U.S. Trustee oversight fees, and 341 creditor meetings. An ABC is a state law process — no court filing required, no quarterly trustee fees, no public PACER docket. ABCs typically complete in 3–6 months. Chapter 7 averages 12–18 months.

Does an ABC discharge personal liability?

No. An ABC discharges the corporation’s debts through the liquidation process. It does not discharge personal guarantees. If you personally guaranteed a business debt, the creditor can still pursue you personally after the ABC. Section 14 of the kit covers personal liability analysis in detail.

What happens to the pending lawsuit against my company?

Creditors with pending lawsuits file claims in the ABC process like any other creditor. The ABC does not have an automatic stay like bankruptcy, but once assets are assigned, the assignee controls the estate and pending litigation typically pauses during the liquidation process. Lawsuit claimants receive the same priority treatment as other unsecured creditors unless they have a judgment lien on specific assets.

How are employees treated in an ABC?

Employee wage claims up to $15,150 per employee (2025 limit) are priority unsecured claims — they are paid before general unsecured creditors from available funds. Unpaid wages above that limit are general unsecured claims. WARN Act notice obligations depend on employee count and circumstances. Section 11 covers employee claims in detail.

Can creditors challenge an ABC?

Yes. Creditors can challenge an ABC on grounds including improper assignment, failure to give proper notice, fraudulent transfer of assets before the assignment, and assignee conflicts of interest. Section 10 of the kit covers creditor challenge rights and procedures.

Is this legal advice?

No. This system provides educational information and document templates only. It does not constitute legal advice and does not create an attorney-client relationship. Justice Foundation is not a law firm. For complex creditor disputes, fraudulent transfer litigation, or matters involving personal liability — consult a licensed California business or insolvency attorney.

Educational use only. Not legal advice. Justice Foundation.