How the California ABC System Works
Three layers working together: the kit’s legal knowledge, Claude AI’s analytical power, and California’s Assignment for Benefit of Creditors process.
Run the decision tree. Identify whether ABC is right for your situation. Go to the section for your role — assignor, assignee, or creditor.
Copy the prompt for your situation, fill in your business facts, paste into claude.ai (free). Get personalized educational analysis of your options and obligations.
Select the assignee. Execute the agreement. Give notice. Liquidate. Distribute. Close the business properly and legally.
The Prompt Is the Tool
Most business owners facing closure have never heard of an ABC. Their accountant doesn’t know the priority waterfall. Their attorney quotes $15,000 to handle the process. The kit’s Claude AI prompts identify exactly what applies to your situation — the creditor priorities, the fraudulent transfer lookback window, the assignee selection criteria — and produce an action plan the same session.
Here is what that looks like in practice.
Real Example — What a Business Owner Entered
My company has $380,000 in debt spread across 12 creditors. Bank of America holds a $120,000 secured line of credit against our equipment. We have $45,000 in accounts receivable, $60,000 in equipment, and a pending lawsuit from a former employee for $85,000. We have 8 employees. We cannot make payroll next month. California corporation. I want to close properly without personal liability.
What the Prompt Returned
ABC vs. Chapter 7 analysis: ABC is strongly preferred here. The secured creditor (BofA) will be paid from equipment liquidation regardless of process. ABC eliminates $15,000–$25,000 in U.S. Trustee fees and court costs. The pending employee lawsuit becomes a general unsecured claim — same treatment in both processes but ABC resolves faster.
Priority waterfall identified:
- Tier 1 — Secured: Bank of America $120,000 — paid first from equipment proceeds ($60,000 available). Deficiency of $60,000 drops to general unsecured.
- Tier 2 — Priority unsecured: Employee wages up to $15,150/employee (2025 limit) — 8 employees = up to $121,200 in priority wage claims. WARN Act analysis: 8 employees is below the 100-employee federal threshold but check California’s 75-employee threshold.
- Tier 3 — General unsecured: Remaining creditors including BofA deficiency and employee lawsuit — pro rata distribution from whatever remains after Tiers 1 and 2.
Fraudulent transfer window: California Uniform Voidable Transactions Act — 4-year lookback. Any transfers to insiders at below-market value in the past 4 years are subject to claw-back. Identify and disclose to assignee.
Assignee selection criteria for this estate: Estate value ($45K AR + $60K equipment = ~$105K gross) suggests a professional assignee firm that handles mid-size commercial estates. Avoid assignees with conflicts — check for any prior relationship with BofA or the employee claimant’s attorney.
5-step action plan produced:
- Contact 2–3 professional assignee firms for proposals this week — estate must be assigned before assets deteriorate further
- Execute the Assignment Agreement — transfers all assets to assignee as of execution date
- Give notice to all 12 creditors by certified mail within required period
- File UCC termination statements and notify AR debtors to pay assignee directly
- Cooperate with assignee on liquidation — do not transfer any additional assets after execution
$120K — paid from equipment
Up to $121,200 next in line
Saves $30K–$80K in fees
Educational use only. Not legal advice. Justice Foundation.
California ABC System 