What Factors Affect the Value of a Crypto Bankruptcy Claim?

Jonathan Handles
Jonathan Handles
Xclaim contributor

What Factors Affect the Value of a Crypto Bankruptcy Claim?

If you're unlucky enough to be owed money by a company that has gone bankrupt, particularly a crypto platform, you're probably wondering how much you'll actually get back. Unfortunately, the amount you'll receive is usually less than what you're owed (also called the "face value"). This happens because of several reasons, including:

  • The percentage of your claim that will be paid due to the bankruptcy process
  • The time it takes to receive payment because of the bankruptcy proceedings
  • The impact of rising prices (inflation)
  • The uncertainty surrounding all these factors

This article discusses these issues and provides some guidance on how to consider them when deciding what to do with your bankruptcy claim.

Estimating the Amount You'll Get

In reality, creditors rarely receive the full amount of their claim in bankruptcy cases. The actual payments can vary widely depending on many factors. Some factors are specific to the bankrupt company, some are related to the industry it operates in, and some are influenced by the overall economy.

So how can a creditor estimate how much of their claim they'll likely receive at the end of a bankruptcy case? There are different strategies, but large bankrupt companies often provide their own estimate in a document called a Disclosure Statement, which is submitted to the bankruptcy court. For more information on Disclosure Statements and how to find the company's estimate, you can refer to our article on that topic.

Delays in Getting Paid

Not only do creditors usually receive less money in bankruptcy, but they also often have to wait a long time before receiving any payment at all. There are stories of creditors waiting for decades to get the full amount they're owed. For example, some creditors of Lehman Brothers are still receiving partial payments 14 years after the company filed for bankruptcy in 2008. On average, though, research suggests that creditors wait around 2.8 years to get paid after a bankruptcy filing.

Impact of Rising Prices

Inflation is the idea that prices generally increase over time. So, if you have to wait years to receive payment from a bankruptcy case, the value of the money you'll get decreases due to inflation. This means it's generally better to receive a dollar today than to receive it in a year or five years from now. The Bureau of Labor Statistics provides a tool on its website where you can see how the value of a dollar has changed between any two months if you're interested.

Uncertainty and Risk

As you can see from this article, being a creditor in a bankruptcy case involves a lot of uncertainty. The amount you'll be paid, the timing of the payment, and the future value of that money are all uncertain. Therefore, when deciding whether to wait until the end of the case to get paid, you should consider your own tolerance for risk. There are other options available, like selling your bankruptcy claim to investors who specialize in buying them. They can offer you a guaranteed payment today instead of waiting for the bankruptcy case to conclude in the hope of receiving more money later.

Calculating the Current Value of Your Claim

Since it's difficult to determine the true value of a bankruptcy claim, Xclaim has created a new Claim Calculator to help creditors. With the Claim Calculator, you can enter values for the percentage of recovery, payment delay, and inflation to see how they affect the current value of your claim in real terms. You can also adjust the values to see how sensitive the value of your claim is to each factor's assumptions.

Please note that the information provided here is general in nature and not a substitute for professional legal advice. The bankruptcy process can be complex, and it is recommended to consult with an attorney to understand how the specific facts of your case may impact your options as a creditor. Have a question about your claim in one of the crypto bankruptcies? Reach out to an Xclaim representative. To learn more about Xclaim and recovering value from locked crypto accounts, please visit: www.x-claim.com

About Xclaim

Xclaim operates the only independent online trading platform for crypto bankruptcy claims. With the largest network of buy-side traders, crypto account holders can trust the competitive and transparent solution of an open-market platform to deliver the highest price and most favorable terms. Xclaim is relentlessly focused on helping its customers unlock value and better allocate risk amid rapidly changing market conditions.