There are many factors that could lead to a company considering bankruptcy. It is possible that a business idea did not take off or flourish as expected. Changes in the market may have caused a company to experience a recent slump in business. A situation in which someone inherits a failing company may also exist.

Filing bankruptcy might seem like the best way to pay off a company’s debt. In many cases, bankruptcy is the best option. However, there are other options that may offer much-needed relief from debt without having to file for bankruptcy.

Receivership Alternative to Declaring Bankruptcy

Receivers are creditors who take over the property of a debtor. This re-possession is overseen by the court until the bankruptcy trustee decides what to do with them. The receiver or creditor is responsible for liquidating or continuing to run the business during a receivership. In Florida, a new Commercial Real Estate Receivership Act was implemented in early 2022. This expanded the rights of receivers in such situations.

Composition Agreements Between Creditors and Debtors

Sometimes creditors will agree to a composition agreement. In these agreements, a creditor records the debtor’s outstanding amount as paid in return for a lower payment than the original loan amount. Creditors who are unable to agree to the composition might opt to add the entire amount to any assets the debtor has.

Assignments to Creditors

As an assignment to creditors, debtors may transfer large amounts of their property to an adjustment bureau trustee. This liquidates the assets in order to settle outstanding debts. The court will distribute any proceeds to creditors.

Sometimes, the assets of a company may not be worth their full market value. These cases may lead to business owners owing the difference between the sale price and the balance owed. Some jurisdictions prohibit creditors from claiming that a debtor owes a balance after they have agreed to assign the debtor for creditors’ benefit.

There are many options for companies trying to manage large amounts of debt. Businesses can also choose to discharge their debts without going bankrupt. Every option has its advantages and disadvantages. It is important to determine which path is best for you.

This post was written by Trey Wright, an experienced bankruptcy lawyer in Jacksonville FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.

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