In certain instances, bankruptcy filing is the most effective way to reorganize debts or liquidate assets. However, filing bankruptcy is not always necessary. Other alternatives may be cheaper or may provide better solutions to financial issues.
A forbearance or note extension is a simpler and cost effective approach to dealing with property foreclosure or a maturing note. This alternative is geared toward individuals or entities that have one or a couple secured lenders. Similarly, out of court workouts, regardless of the debt amount or complexity of the debt structure, are generally less expensive than bankruptcy.
A receivership is similar to bankruptcy. To appoint a receiver, there must be an underlying pending lawsuit in a court other than bankruptcy court. Receivers are generally appointed by secured creditors to manage or liquidate property that is pledged to the secured creditor. Receivers have the power to sell property, collect receivables, run businesses, or take whatever actions are appropriate in each case. Receivers are always independent, neutral third parties.
Assignment for the Benefit of Creditors
An assignment for the benefit of creditors is another alternative to bankruptcy. It is an insolvency proceeding governed by state law rather than bankruptcy law. In an ABC, the debtor assigns or transfers all of its assets to an assignee who liquidates the assets. ABC proceedings differ from chapter 7 bankruptcy in that the insolvent entity can choose the assignee whereas a random trustee is appointed in a chapter 7 case. Each state has its own ABC laws.