Colorado's New Business Life Raft: A Faster, Cheaper Alternative to Federal Bankruptcy

What This Bill Actually Does

Right now, if a local restaurant, a construction firm, or a mid-sized startup in Colorado goes belly-up, their primary structured option is federal bankruptcy court. But federal bankruptcy is notorious for being painfully slow, highly public, and incredibly expensive—often eating up the very cash that was supposed to go to the people owed money. Enter the Assignment for the Benefit of Creditors (ABC). Think of an ABC like a private, state-level bankruptcy. The failing business (the assignor) legally signs over everything they own to an independent professional (the assignee). This neutral third party then liquidates the assets and pays off the people owed money (creditors). While ABCs have technically existed in common law for years, SB26-079—the Uniform Assignment for Benefit of Creditors Act—officially writes the rules into Colorado statute so everyone knows exactly how the game is played.

The bill sets strict boundaries to prevent fraud or sweetheart insider deals. The assignee cannot be a business insider, a corporate affiliate, or a buddy of the owner. They must be completely neutral and owe a strict fiduciary duty to the estate, meaning they are legally bound to get the absolute most money possible out of the assets. The struggling business owner has to hand over the keys, sign away the property, and provide a comprehensive list of every single creditor, verified under penalty of perjury. Once in charge, the assignee gets broad powers under Section 5-22-110. They aren't just a liquidator; they have the authority to actually run the business temporarily if keeping the doors open will maximize its sale value. They can incur debt, break unfavorable leases, settle lawsuits, and even claw back shady transfers of money that happened right before the business folded.

For the people owed money, the bill creates a highly transparent process. Creditors will get a formal notice in the mail and have exactly 120 days to file a Proof of Claim (the paperwork proving they are owed cash). The assignee is legally required to keep the estate's money in a separate trust account, provide financial updates to creditors at least every six months, and eventually distribute the funds in a specific priority order. If a creditor's claim is rejected, the bill sets up a clear process to dispute it in state court. By standardizing these rules, Colorado hopes to give businesses a dignified, efficient way to close up shop while ensuring vendors and lenders actually get paid what they're owed.

What It Means for You

Let's say you paid a $5,000 deposit to a general contractor for a kitchen remodel, or bought a custom piece of furniture from a local shop, and the company suddenly shuts its doors. Under the old system, you might just be out of luck, leaving angry voicemails and hoping a lawyer can help you claw back your cash. Under this new framework, if the company uses an ABC to wind down, you aren't left in the dark—you become a formalized creditor with clearly defined rights.

If a business you've dealt with enters this process, you will receive a formal notification in the mail. This notice will give you the name and contact info of the assignee—the independent professional who is actually holding the purse strings now. The bill gives you a hard, non-negotiable deadline: you will have exactly 120 days from the effective date of the assignment to file your Proof of Claim. If you miss that window, your claim could be denied entirely, and you get nothing. But if you submit it on time, the assignee is legally required to send you a financial update every six months. You don't need to hire an expensive bankruptcy attorney to figure out what's going on; the transparency is built right into the state statute.

Here is what you need to do to protect yourself:

• Watch your mail for legal notices: If a company you do business with goes under, don't throw away boring-looking envelopes. It might be your 120-day notice to claim your money.
• Document your deposits: Keep clear records, receipts, and contracts for any money you put down with vendors or contractors. If they fold, you'll need this proof to easily submit your claim to the assignee.
• Act fast if a business closes: Don't wait around hoping for a refund. The 120-day clock starts ticking as soon as the assignment agreement is signed.

What It Means for Your Business

Whether you're a commercial landlord, a wholesale supplier, or a freelance consultant, when a client ghosts you and shuts down, it hits your bottom line hard. The Uniform Assignment for Benefit of Creditors Act gives you a much clearer path to recovering those funds than the wild west of standard collections or the glacial pace of federal bankruptcy court. Because the bill requires the failing company to list all its creditors under penalty of perjury, you are far more likely to be formally notified when things go south, rather than finding out when an invoice goes 90 days past due.

On the flip side, if you are the one looking at closing your doors, this bill offers a formalized, potentially much cheaper "life raft." By voluntarily assigning your assets to an independent professional, you hand off the immense stress of winding down, selling off inventory, dealing with angry vendors, and negotiating with landlords. The assignee takes over the legal burden. However, you must play strictly by the rules: the assignee must be fiercely independent. You cannot just hand your assets over to your brother-in-law, a holding company you control, or a favored creditor. You must also turn over a complete list of your assets and debts under penalty of perjury—no hiding cash in the mattress.

Here are the specific moves business owners should make to prepare:

• Review your accounts receivable this week: Identify any clients who are seriously behind on payments or showing signs of insolvency. If they enter into an ABC, you need to be ready to file your Proof of Claim within the strict 120-day window to get paid.
• Update your vendor contracts: Ask your lawyer to ensure your standard contracts clearly dictate what happens in the event of an insolvency or an assignment for the benefit of creditors.
• Know your exit options: If your own business is struggling to stay afloat, ask your legal counsel if a state-level ABC under the new Colorado framework might be a cleaner, quieter exit strategy than a Chapter 7 bankruptcy filing.

Follow the Money

This bill is essentially a freebie for Colorado taxpayers. According to the nonpartisan fiscal note, SB26-079 requires no state appropriations and will cost the state $0 in both FY 2026-27 and FY 2027-28. The entire financial process happens in the private sector between the failing business, the independent assignee, and the creditors.

There is a tiny ripple effect for the state court system. Because the bill allows state courts to step in to remove an assignee for bad behavior or to settle complicated disputes over creditor claims, the Judicial Department might see a small bump in civil case filings. These filings generate a nominal amount of fee revenue (which is subject to TABOR limits), but the state expects this to be entirely manageable with existing judges and court staff. In short: it modernizes business law and creates an efficient economic off-ramp without costing the taxpayer a dime.

Where This Bill Stands

SB26-079 was introduced in the Senate on February 4, 2026, and has been assigned to the Senate Business, Labor, & Technology Committee. The bill is officially sponsored by Senator Marc Snyder and Representative Cecelia Espenoza.

Because this is a "Uniform Act"—meaning it’s a standardized piece of legislation designed by the Colorado Commission on Uniform State Laws to keep business rules consistent across different states—it generally lacks the political baggage of most Capitol fights. It is viewed as a functional legal cleanup rather than a partisan battleground. Expect this to move smoothly through committee hearings this spring. If passed and signed by the Governor, it will take effect 90 days after the legislative session adjourns (likely late summer 2026) and will apply to any new business assignments made on or after that date.