Whether you’re new to the subject, or have been misinformed in the past, we want to set the record straight about Bankruptcy Claims Trading.
Learning that your customer or client has filed for bankruptcy protection can be the end of a long, frustrating journey of failed attempts to collect unpaid amounts owed to you.
Despite a long history evolving into the industry it is today, bankruptcy claims trading is a world that is largely obscure to most people. If helpful information and resources were more readily available, Creditors and those adversely impacted by Chapter 11 would be much more familiar with the benefits of selling a bankruptcy claim.
The truth is—Claims Trading is an option that all creditors should know exists, especially for finance, accounting, and credit professionals. If you’re ever faced with the hassle of filing a bankruptcy claim on account of unpaid invoices, you will want to be aware of every possible way to recover your losses and protect your company—particularly solutions that offer expedient cash payment.
Monetizing a bankruptcy claim is an easy solution for creditors that offers an efficient, transparent and secure alternative to potentially waiting years for court rulings to determine your recovery.
Below we reveal 7 Bankruptcy Claims Trading facts everyone should know about.
1. Claims trading is a legal process
Fact: Though unregulated by the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure govern the process for selling claims. Specifically, Bankruptcy Rule 3001(e) governs the mechanics of selling and transferring a claim. And several sections within the Bankruptcy Code such as Section 502(d) and Section 510(c) are applicable respectively to the disallowance of claims and the equitable subordination of claims. The transaction is legally protected by contractual agreements, and covered by applicable statutes in the Federal Rules of Bankruptcy Procedure and the Bankruptcy Code. Ultimately, it is the Federal Judiciary that adjudicates the validity of any claim transfer.
2. Claims trading is an old practice
Fact: Claims trading actually dates back to the 1700s. However, modern claims trading officially began in 1978 with the enactment of the US Bankruptcy Code. In the last 40+ years, bankruptcy trade claims have regularly been bought, sold and transferred.
3. Claims trading can guarantee a cash payout unlike the uncertainty of a bankruptcy court ruling
Fact: Claims trading gives Creditors a higher degree of certainty in payout amount and timing than to await a bankruptcy court ruling. Payment distribution plans approved by a bankruptcy court can take years to take effect. Even so, a full repayment on a claim’s value is not guaranteed for Creditors. Depending on bankruptcy claims priority, class, and type, payout amounts and timing may differ drastically. It is not uncommon for multi-year repayment plans to be instituted, or for remediation plans to be executed that convert the cash value of a claim to equity in the reorganized debtor instead.
A Creditor can sell their claim to bankruptcy claim trading firms as a faster alternative to recover cash instead of waiting for a drawn out bankruptcy process to conclude. Commonly known as Bankruptcy Claims Trading, Creditors can sell their claim’s ownership to interested buyers in exchange for immediate cash payment. Once sold, the claim is transferred to the new owner and officially registered with the Bankruptcy court. Claims trading allows a Creditor to get immediately paid for their claim and to offload the risk of recovery to the new claim owner.
4. Claims trading is not complicated
Fact: Claims trading has been made simple with standardized contractual agreements, turn-key solutions, and digital process efficiencies. With the development of online marketplaces for claims trading, listing your claim for sale and connecting with verified buyers transforms a traditionally complex process to one that is simple and straightforward.
5. Claims trading saves me time
Fact: Claims trading is actually a much faster and simpler process for Creditors to do than to participate in or to follow along with developments in a lengthy Ch. 11 bankruptcy case. A significant time commitment is required of Creditors who take part in a Creditors’ Committee—to voluntarily represent the rights and interests of all other Creditors during the bankruptcy proceedings. In addition to the significant time investment, serving on a Creditors’ Committee can require extensive travel, making decisions that conflict with one’s own interests, and incur additional expenses.
In the past, claims trading was an inefficient process that was manually conducted with pen, paper, and mail. Today, creditors can quickly and safely sell their claim online in a digitally streamlined process. With the advent of our Bankruptcy Claims Marketplace, Creditors can find Buyers, sell and transfer their claim all in one place, enabling even faster recovery on the monetary value of their claim, and saving both headaches and time.
6. Claims trading has minimal risk
Fact: Associated risks are minimized by decades of claims trading precedence, provisions in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, standardization of contracts, and the involvement of legal representation. Standardized contracts outline the trade confirmation, assignment of the claim, the structure of the purchase price and specifics of any claim impairments. Although any business transaction has its risks, Creditors can further minimize these risks by staying informed, seeking the advice of bankruptcy-specialized legal counsel, vetting their buyers, and transacting through transparent channels such as a centralized claims trading market.
7. I am in control when selling my claim
Fact: Creditors have more control in the process of claims trading than they otherwise would while passively waiting for updates and rulings from the Bankruptcy Court. For those who want to take matters into their own hands, selling their claim gives Creditors the flexibility and control over the timing and outcome of their claim’s value.
A Final Word
You can’t say you’re uninformed or unfamiliar about Trading Bankruptcy Claims any more. Selling your claim is legal, safe and easy to accomplish.
At XCLAIM, we built our centralized marketplace to help Creditors connect with interested Buyers to quickly recover debts, on your own timeline and on your own terms.