5 Exits Compared: Settlement, Restructuring, Subchapter V, Article 9, and Assignment for the Benefit of Creditors

The Five Variables That Actually Decide This

By the time an owner is comparing exits, the question has usually been framed wrong. It gets asked as which option is best, and there is no answer to that, because these five procedures are not competitors doing the same job at different price points. Each one takes control away from a different party and hands it to another. So the useful comparison runs across five columns: what it costs in cash, how many weeks or months it takes, who is in charge once it starts, what it does to the personal guarantee you signed, and what happens to the secured positions and UCC filings sitting on your assets. Fill those five in honestly for your own file and the choice usually makes itself.

One warning before the comparison, because it is the mistake that costs the most money. Options fall off this list as time passes. A settlement is available until a creditor decides litigation is cheaper than talking. Subchapter V is available until your liabilities cross the statutory ceiling. An Article 9 sale is available only while a senior secured lender is still willing to run one. If you want the mechanics of the consensual side in more depth, we cover the full out-of-court toolkit in nine ways to restructure business debt without filing bankruptcy, and what a lawsuit does to the analysis in what happens when an MCA funder sues you personally.

1. Negotiated Settlement

Settlement is a private contract: you pay a creditor less than the balance, in a lump sum or across a short schedule, and it releases the claim. Cost is professional fees plus the settlement dollars, with no court filing fee and no trustee. Reputable firms charge nothing upfront and earn only when a deal is signed, which is how Delancey Street is structured; the negotiation itself and any court filings are handled by licensed attorneys within their network. On timeline, in the files we work a single position typically closes in 2 to 8 weeks, and a stack of four with one lawsuit already filed runs 3 to 6 months. Our own settlements generally land between 30% and 60% of the balance, and the strength of your defenses moves that range more than your hardship story does.

You control this one, which is the whole appeal and also its limitation. Nobody takes your bank account, appoints a fiduciary, or tells your customers anything, and you decide which position to resolve first and at what price. What you cannot do is make anyone participate. Every creditor keeps its own veto, and a funder that thinks it can collect the full balance through a judgment will simply decline and file. Settlement leverage is built from the creditor’s costs and legal exposure, not from your need, and that is why files with a documented reconciliation failure or a disclosure problem settle at better numbers than files without one.

The personal guarantee survives unless the release names you individually. This is the single most common drafting failure we see: an agreement that releases the company, gets paid in full, and leaves the guarantor exposed to the same balance. Read for whether the release covers the entity, the guarantor, the syndication partners, the servicer, and any assignee. The UCC filings work the same way. A paid balance does not clear a financing statement on its own, so the termination has to be a condition of payment; as a backstop U.C.C. §9-513(c) gives a paid-off secured party 20 days to file or send a termination statement after an authenticated demand.

Settlement is disqualified in two situations. The first is no access to cash and no realistic source of it, because a creditor holding a claim will not trade it for a promise from a business that just stopped paying. The second is the creditor that already has a judgment and has restrained the accounts, since it now holds what it wanted and its price goes up rather than down. Note the sequencing risk too: settling three of four positions accomplishes very little if the fourth sues, which is why a multi-position file needs a strategy across all of them before the first wire goes out.

2. Out-of-Court Restructuring

Restructuring covers the consensual work that keeps the company operating: a forbearance that cuts the debit and stretches the term, a refinance into a real amortization, a consolidation of several positions into one payment, or a composition agreement in which your major creditors accept reduced balances on a common schedule. Cost is legal and advisory fees plus whatever new financing charges, and a composition adds the expense of dealing with a committee and often a disbursing agent. Timelines are short at the simple end, since a forbearance can be papered in a week, and long at the complex end, because a composition with fifteen creditors has taken us 60 to 120 days to assemble and sign.

You keep control of the business and of the negotiation. What you do not get is any power to bind a creditor who says no. There is no cramdown outside of bankruptcy, no confirmation hearing, and no mechanism that drags a holdout onto everyone else’s terms, so a composition is written with a participation condition and lapses if the threshold is missed. One dissenter with a judgment can restrain your deposits while every other creditor is performing, and in New York a garnishee served under C.P.L.R. §5222(b) may hold twice the amount due on the judgment. Creditors know this arithmetic, which is why the largest one usually sets the terms.

The guarantee typically comes out of a restructuring in worse shape than it went in. Forbearance and amendment documents routinely ask for reaffirmation of the balance, a waiver of existing defenses, a release of claims against the creditor, additional collateral, and sometimes a guarantee from a spouse or an affiliate that was not on the original paper. In many states an acknowledgment of the debt also restarts the limitations period. Secured positions stay exactly where they are, and amendments sometimes broaden the collateral description, so compare the new financing statement against the old one after closing.

This exit is disqualified when the creditor group is too fragmented to be assembled, or when one creditor holding enough of the debt has decided to litigate. It also fails on arithmetic: if the restructured payment still exceeds what the business can generate after payroll and rent, a restructuring is a delay with fees attached, and the file comes back in 60 days worse than it started. Test the plan against a real cash forecast before you sign, because a creditor that gets defaulted on twice negotiates very differently the second time.

3. Subchapter V of Chapter 11

Subchapter V is the small-business reorganization track added to Chapter 11 by the Small Business Reorganization Act and codified at 11 U.S.C. §§1181-1195. The court costs are modest for what you get: the case filing fee is $1,167 with a $571 administrative fee, and Subchapter V is carved out of the quarterly United States Trustee fees an ordinary Chapter 11 pays, which 28 U.S.C. §1930(a)(6)(B) sets at the greater of 0.4% of disbursements or $250 for a quarter below $1,000,000 of disbursements and at 0.9% of disbursements, capped at $250,000, for a quarter at or above that line. Professional fees are the real expense. The statutory clock is fast: a status conference within 60 days of the order for relief under §1188(a), a report 14 days before it, and a plan filed within 90 days under §1189(b).

You stay in control in a way no other exit on this list allows. The debtor remains in possession, and under §1189(a) only the debtor may file a plan, so there is no competing plan and no exclusivity fight. Section 1181(b) switches off the creditors’ committee provisions and the disclosure-statement requirement unless the court orders otherwise, which removes both a cost center and an adversary. A Subchapter V trustee is appointed under §1183 with a duty at §1183(b)(7) to facilitate a consensual plan. Most important, §1191(b) lets the court confirm over a dissenting class if the plan does not discriminate unfairly and is fair and equitable, with §1191(c) requiring your projected disposable income for 3 years, or up to 5 if the court sets a longer period.

The guarantee is where owners are most often misinformed. The automatic stay protects the debtor, and a corporate filing does not stop a creditor from suing you personally on your guarantee. 11 U.S.C. §524(e) says a discharge of the debtor’s debt does not affect the liability of any other entity for that debt, and after Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), a plan cannot release claims against a non-debtor without that claimant’s consent. Secured positions ride through the case with their liens intact, subject to valuation and treatment in the plan, and §1192 grants the discharge only after you complete the payments due in the first 3 years, or the longer period the court fixed.

The disqualifier is the debt ceiling. Section 1182(1) defines a Subchapter V debtor as a small business debtor, and that definition in 11 U.S.C. §101(51D) carries the dollar limit on aggregate noncontingent liquidated debts, adjusted every three years under §104. The temporary $7,500,000 figure from the pandemic era expired in June 2024, and the number that governs today is $3,424,000, per the federal courts. Cross it and you are in a full Chapter 11 with committees, disclosure statements, quarterly fees, and the absolute priority rule. Proposals to restore the higher limit surface in Congress periodically, so verify the figure on the day you file rather than trusting any page, including this one.

4. Article 9 Secured-Party Sale

An Article 9 sale is a foreclosure and disposition of collateral run by your senior secured creditor, most often selling the operating assets as a going concern to a buyer who continues the business. U.C.C. §9-610 allows disposition after default by public or private proceedings and requires that every aspect of it be commercially reasonable. There is no court filing fee, so cost is the lender’s counsel, the notices, and a broker or auctioneer. It is the fastest exit on this list: §9-612(b) treats notification sent 10 days or more before the earliest disposition date as timely in a non-consumer transaction, and a prepared file has gone from notice to closing in 3 to 6 weeks on the deals we have watched run.

Control belongs to the senior lienholder, not to you and not to a judge. Only a perfected secured party with a default can run the process, which means an unsecured or fourth-position funder cannot, though it will be notified: §9-611(c) requires notice to the debtor, any secondary obligor, and other secured parties whose financing statements are on file. Your role is limited to cooperating or not. There are two guardrails worth knowing. Under §9-610(c) the secured party itself can buy at a private disposition only where the collateral trades on a recognized market or, under §9-610(c)(2), is the subject of widely distributed standard price quotations, and under §9-615(f) a sale to the secured party or an insider is measured against what an arm’s length sale would have produced.

Your guarantee survives, and so does the shortfall. Section 9-615(d) makes the obligor liable for any deficiency after proceeds are applied to expenses and the secured obligation, and the guarantee follows that deficiency to you personally. The lien treatment is the reason this structure exists at all: under §9-617 the buyer takes the debtor’s rights free of the foreclosing security interest and of subordinate liens, which is what makes the assets saleable, while senior liens survive. If the process was not commercially reasonable, §9-626(a) puts the burden of proving compliance on the secured party and measures the deficiency against a compliant sale, which is genuine leverage for a junior creditor or a guarantor.

The disqualifier is structural. If no senior secured lender is willing to foreclose, there is no Article 9 sale, and if the collateral has little value apart from you personally then there is nothing worth buying. It is also the wrong tool when your goal is to keep ownership, because the buyer ends up with the assets. One question worth asking before an auction is scheduled: under §9-620 a secured party may accept the collateral in full satisfaction of the debt if the debtor consents and no holder of a subordinate interest objects within 20 days, which can eliminate the deficiency entirely.

5. Assignment for the Benefit of Creditors: No Stay

An ABC is a state-law liquidation, not a federal one. You assign every asset of the company to an assignee who becomes a fiduciary for your creditors, sells the assets, adjudicates claims, and distributes proceeds in priority order. Because it is creature of state law, the procedure genuinely varies, and it is well developed in only a handful of places. California’s version runs through the Code of Civil Procedure, where §1802 requires notice to creditors within 30 days of the assignee’s written acceptance and a claims bar date 150 to 180 days later. New York’s sits in Debtor and Creditor Law article 2, §§2 through 24 plus §21-A, under court supervision.

Cost is the assignee’s compensation and professional fees, paid from the estate ahead of creditors, plus whatever the state requires procedurally. Timeline splits in two: the asset sale can close in weeks, because buyers are comfortable purchasing from a fiduciary, while the claims and distribution phase takes months and follows the bar date. Control passes to the assignee the moment the assignment is signed. Management’s authority ends, equity gets nothing, and the assignee decides what to sell and to whom, which is exactly why creditors often prefer it: a knowledgeable fiduciary usually realizes more from the assets than a liquidator would, without the layers of a Chapter 7.

There is no automatic stay, and that fact governs everything about your personal position. A creditor holding your guarantee can sue you, take a judgment, and enforce it while the estate is being administered, and the assignment does nothing about it. Secured creditors’ liens follow the assets, so a senior lender with a blanket filing either gets paid from its collateral or consents to a sale. What an ABC does give the guarantor is a clean, documented liquidation with a fiduciary’s accounting, which tends to produce better settlements on the guarantees than a chaotic shutdown does.

The disqualifier is simple: an ABC cannot save your business, only end it in an orderly way. It is also a poor fit where your state has no developed practice, since an unfamiliar procedure in an unfamiliar court invites objections that eat the estate. And it does not touch the personal liabilities that dissolution never reaches anyway, including trust-fund payroll taxes, which are collected from responsible individuals under 26 U.S.C. §6672 at the full amount of the tax.

Reading Across the Five: How the Choice Usually Resolves

Put the five side by side and a pattern shows up. Cost rises as control moves away from you: settlement is cheapest and leaves you in charge, Subchapter V costs real money and leaves you in possession with the power to bind dissenters, and the Article 9 sale and the assignment are cheaper than a bankruptcy case precisely because someone else is running them. Speed runs the other way, and these are our own timelines rather than anyone’s published data. The Article 9 sale is the quickest at 3 to 6 weeks, settlement takes 2 to 8 weeks per position, a restructuring 30 to 120 days, Subchapter V at least 90 days to a filed plan and 3 to 5 years of payments, and an ABC months to distribute.

The guarantee is the variable that decides most files, because it is the one item none of the five fixes on its own. A settlement can release it if the document says so. Subchapter V cannot, given 11 U.S.C. §524(e) and the holding in Harrington v. Purdue Pharma that a plan may not release claims against a non-debtor without consent. An Article 9 sale leaves you owing the deficiency under §9-615(d). An ABC leaves your guarantors exposed to suit with no stay to slow it down. So the practical question is rarely which exit saves the company; it is which sequence resolves the entity and the guarantee together, and that usually means one procedure for the business and a separately negotiated release for you.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.