Definitions and comparisons

Chapter 7 vs Chapter 11 vs ABC: what happens to company records

By SourceX Editorial · Reviewed by Noah Loul · October 9, 2026

Short answer

Chapter 7, Chapter 11 and an assignment for the benefit of creditors (ABC) differ most in who controls company records. A Chapter 7 trustee takes control and liquidates; in Chapter 11 the company usually stays in control as debtor in possession; in an ABC an assignee takes title under state law. Any license needs that party's approval.

Key takeaways

Control of records follows the process: the trustee in Chapter 7, the debtor in possession in Chapter 11 and the assignee in an ABC.
Sales and licenses outside the ordinary course generally need court approval in bankruptcy, while ABCs run under state law with less court involvement.
Privacy promises made to customers and employees still matter in all three routes, and bankruptcy courts can require privacy review before a sale.
System access is the practical risk in every route, so export records before subscriptions lapse.

Who controls company records in each process?#

Company records are controlled by the trustee in Chapter 7, by the company itself as debtor in possession in most Chapter 11 cases, and by the assignee in an ABC. That control decides who can export, preserve, sell or license records, and whose signature a buyer will need.

Founders and former executives are often surprised by how completely control moves in Chapter 7 and in an ABC. They may still be the people who understand the systems, but they no longer decide what happens to the records.

Who controls company records in each process?
Question	Chapter 7	Chapter 11	ABC
Who controls records	A court-appointed trustee	Usually the company as debtor in possession, under court oversight	An assignee chosen by the company, who takes title to the assets
Business status	Operations usually stop	Operations usually continue during the case	Operations usually stop or wind down quickly
How data assets are sold or licensed	Trustee sells or licenses, typically with court approval	Sale or license with court approval, or under a confirmed plan	Assignee sells or licenses under state law
Court involvement	High	High	Lower, and it varies by state; Florida, for example, runs ABCs through its circuit courts
Privacy review	If the privacy policy in force at filing bars transfers of personally identifiable information, a sale must fit the policy or follow a consumer privacy ombudsman review	The same rule applies, and creditors, state attorneys general or the FTC may weigh in	No bankruptcy-court review, but privacy laws, contracts and the promises made at collection still apply
Licensing feasibility	Possible if the trustee sees value and records were preserved	Most flexible, since staff and systems usually remain	Possible if the assignee acts before systems lapse

Why system access is the first risk in every route#

System access is the first risk because cloud records live in subscriptions that stop when payments stop. Help desk histories in Zendesk, CRM records in Salesforce and ERP data in NetSuite can become unreachable well before anyone decides what they are worth.

Preservation is not a decision to sell or license anything. It keeps options open for whoever ends up in control, and it protects records the company may have to retain for legal reasons anyway.

Identify every system holding operating records, with its admin owner and billing date.
Take full exports, including attachments and audit logs, while admin access works.
Store exports encrypted, with an access list and a written chain of custody.
Keep copies of the privacy notices, customer contracts and employee policies in force when records were collected.
Note which former employees can explain each system, and how to reach them.

How Chapter 11 treats records and data sales#

In Chapter 11, records usually stay with the company as debtor in possession, which can keep operating and propose sales or licenses for court approval. That continuity is the main advantage for data: the people who know the systems are often still employed.

A license of data outside the ordinary course of business generally needs court approval under section 363(b) of the Bankruptcy Code, after notice and a hearing, and creditors can object. If the privacy policy in force at filing barred transfers of personally identifiable information, a sale or lease of that information must either fit the policy or be approved after a consumer privacy ombudsman is appointed and the court finds no showing that it would violate applicable nonbankruptcy law.

The Code's definition of personally identifiable information centers on details individuals gave the company to obtain products or services for personal, family or household purposes, such as names, home addresses, email addresses and card numbers. Records of business contacts may fall outside that trigger, but state privacy laws, customer contracts and the policy's own promises can still apply.

A license can also sit inside a broader sale or plan. A buyer of the business may want the records themselves, so the debtor and its advisers should decide early whether a separate license would reduce the value of a going-concern sale.

What changes in Chapter 7#

In Chapter 7, a trustee takes control of the estate's assets, including records, and liquidates them for creditors. The trustee may sell or license data assets if doing so produces value, usually with court approval.

The practical constraint is knowledge. Operations have usually stopped and staff have left, so the trustee may need former employees to explain what the records contain. Records that cannot be described, or whose rights cannot be shown, are harder to sell or license at all.

Trustees also weigh cost. Keeping a subscription alive, paying a former admin to run exports and funding a privacy review are estate expenses, so a trustee will want a credible view of value before spending on them. A short, metadata-only description of the records helps make that call.

How an ABC handles company records#

In an ABC, the company assigns its assets, including records and systems, to an assignee who liquidates them for creditors under state law. ABCs are often chosen because they can move faster and more privately than bankruptcy, and the company typically picks the assignee.

ABC procedure depends on the state. Florida, for example, runs ABCs as a circuit-court proceeding in which the assignee preserves, liquidates and reports on the assets, while other states involve courts far less. Either way there is no bankruptcy-court privacy review, but the company's privacy promises, customer contracts and applicable privacy laws still limit what the assignee can do, and buyers usually ask for more evidence of title and authority.

Assignees inherit the access problem too. If the company assigned its assets but the admin credentials left with a departing employee, the assignee may need vendor support to regain control of accounts, and that can take longer than the paid subscription has left to run.

Illustrative: a freight carrier in Chapter 11 licenses exception records#

Illustrative: a fictional asset-based freight carrier with a brokerage arm files for Chapter 11 and keeps operating. It runs McLeod for dispatch and billing, Samsara for fleet telematics and a help desk for shipper claims.

Its advisers see value in years of load records linked to delays, claims and resolutions. The company exports the records, removes shipper contact details, driver names and precise locations, and proposes a non-exclusive, time-limited license. The motion explains the privacy preparation and why the license does not impair a later sale of the business.

No creditor objects, the court approves the license, and the carrier keeps ownership of the records for whichever buyer later acquires the business.

What privacy review applies to customer and employee records?#

Privacy review applies in all three routes, because privacy promises and privacy laws do not end when a company becomes insolvent. The questions stay the same; only the person answering them changes.

Regulators have shown how they read these promises. In RadioShack's 2015 Chapter 11 case, the FTC recommended that customer data go only to a buyer in substantially the same line of business that agreed to be bound by RadioShack's privacy policy. In 23andMe's 2025 case, the FTC chairman wrote that any purchaser should agree to be bound by the company's privacy policies. And in August 2026, reporting on the bankruptcy auction of Spirit Airlines' internal business data for AI training described passenger profiles, loyalty records and privileged material being excluded, with personal information to be removed by a third party before delivery.

What did the privacy policy say about transfers in a sale, merger or insolvency when the records were collected?
Which customer contracts or data processing agreements require deletion or return of data at termination?
Which state privacy laws may apply to customer, employee or applicant records?
Can the records be de-identified before any license, so personal information never leaves the estate?
Who will certify deletion of copies the estate no longer needs?

How SourceX works with trustees, assignees and debtors#

SourceX deals with whoever holds authority over the records: the trustee, the assignee or the debtor in possession. The SourceX five-step transaction, Supply, Rights, Preparation, Approval and Delivery, stays the same, with the Approval step matched to the process, including any court order it requires.

In an insolvency, the release authorization in the SourceX Evidence Packet records the order or assignment that gives the signer authority, beside provenance, licensing rights, permitted use and the privacy record. Multi-terabyte archives are never moved onto SourceX systems; they remain in the estate's storage or travel on encrypted drives.

Frequently asked questions

Can founders license company data after a bankruptcy filing?

Usually not on their own. Once a case is filed, control of estate assets sits with the debtor in possession under court oversight or with a trustee. Founders can still help by explaining the systems and records to whoever controls them.

Is licensing data better than selling it in an insolvency?

It depends on the goal. A license keeps ownership in the estate, which can preserve value for a later sale of the business, while an outright sale converts the asset once. Advisers weigh which produces more for creditors and which carries less privacy risk.

Can an ABC assignee license records instead of selling them?

Generally yes, if the assignment gives the assignee authority over the assets and the license serves creditors. The assignee still has to respect privacy promises and contracts that limit use. Counsel should confirm the scope of authority under the governing state law.

Which route preserves the most data value?

There is no single answer. Chapter 11 usually keeps people and systems in place, ABCs can move quickly, and Chapter 7 often starts after operations have stopped. The choice turns on creditors, cost and the business as a whole; data is one input, not the deciding one.

Can a bankrupt company cancel a data license it granted before filing?

Usually not in full. A debtor can reject an executory contract, but the Supreme Court held in Mission Product Holdings v. Tempnology (2019) that rejection works as a breach and does not rescind rights already granted. For licenses of intellectual property, such as trade secrets or copyrighted works, section 365(n) also lets the licensee keep its rights for the contract term if it keeps paying royalties. Purely factual records may fit these rules less neatly, so counsel should review each license.

Sources

Under 11 U.S.C. 363(b)(1), if a debtor's privacy policy in effect at filing prohibits transfer of personally identifiable information, the trustee may not sell or lease it unless the sale is consistent with the policy or the court approves after appointment of a consumer privacy ombudsman and notice and a hearing, finding no showing that the sale would violate applicable nonbankruptcy law. Source
11 U.S.C. 332 requires appointment of a disinterested consumer privacy ombudsman when a hearing is required under section 363(b)(1)(B). Source
11 U.S.C. 101(41A) defines personally identifiable information to include an individual's name, residence address, email address, a telephone number for contacting the individual at that residence, Social Security number or credit card account number, if provided to the debtor in connection with obtaining a product or service primarily for personal, family or household purposes. Source
Florida Statutes Chapter 727 governs assignments for the benefit of creditors, in which an assignee takes possession of, preserves and liquidates the assets and pays creditors under circuit-court supervision. Source
In May 2015 the FTC recommended that RadioShack customer data be transferred only to a buyer in substantially the same line of business that agrees to be bound by RadioShack's privacy policy. Source
On March 31, 2025, FTC Chairman Andrew Ferguson wrote to the U.S. Trustee in the 23andMe bankruptcy that any purchaser should expressly agree to be bound by 23andMe's privacy policies and applicable law. Source
Reporting on the Spirit Airlines data sale says it excludes passenger profiles, loyalty records and privileged legal materials and that a third party would strip personally identifiable information before delivery. Source
In Mission Product Holdings v. Tempnology (2019), the Supreme Court held that rejection of an executory contract has the effect of a breach and cannot rescind rights previously granted. Source
Under 11 U.S.C. 365(n), if a trustee rejects a contract under which the debtor licenses intellectual property, the licensee may elect to retain its rights for the contract term if it continues making royalty payments. Source

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