Should I Sell My Bankruptcy Claim? Four Benefits of Claims Trading

Should I Sell My Bankruptcy Claim? Four Benefits of Claims Trading

Learn why you should sell your claim to gain immediate restitution in order to reinvest back into your business.

Upon notice of the Debtor’s filing for Chapter 11 Bankruptcy, Creditors find themselves in a challenging position. After months or even years of waiting on outstanding payments, Creditors are now faced with a time-consuming and costly legal process that could likely cause them even further financial distress. The unpredictable nature of the Ch.11 process has led to Creditors pursuing alternative options to assert their right to payment.

Among these alternative options is bankruptcy claims trading, or the industry of selling and buying bankruptcy claims. The industry has evolved out of the desperate need for another way for struggling Creditors to recover the money they’re owed.

Claims trading, despite its growth over the past 40 years, is still somewhat of a mystery to many companies and individuals. Once told of claims trading as a potential opportunity, many Creditors ask: is it legal? Is it secure? Does it really guarantee a cash payout?

The answer to these questions is a collective yes. If you’re a Creditor involved in a Chapter 11 case, selling your bankruptcy claim may be the best path forward to receiving immediate cash liquidity.

4 Benefits of Selling Your Bankruptcy Claim

Simply put, Creditors choose to trade their bankruptcy claim in order to recover their lost revenue through a faster, easier and more transparent process. While Ch.11 bankruptcy proceedings can take up to 5 years from the petition date to conclude and for Creditors to see any form of payment, claims trading can provide Creditors with immediate cash within weeks.

Claims trading saves Creditors time, energy, and provides them with the money they need to reinvest back into their business and focus their efforts where they’re needed most.

The following is a list of 4 benefits of claims trading:

1. Elimination of Recovery Risk

Depending on the classification of your claim, the likelihood of recovery varies. Secured claims are paid out in full before unsecured claims. If you’re a lower priority Creditor holding an unsecured claim or equity, trading your claim allows you to avoid the risk of an unpredictable outcome and obtain an outcome you can control.

2. Elimination of Consideration Risk

After the highest priority Creditors are paid out in full, it is common for the Debtor’s bankruptcy estate to become limited in available funds to pay out the lower priority claims. When this happens, the Debtor and bankruptcy court structure payouts in other forms other than cash that are challenging to liquidate. By selling your bankruptcy claim, you can guarantee a cash recovery.

3. Reduction of Time and Money Spent

Each Chapter 11 bankruptcy case is an uncertain process with its own unique complexities that can influence the time and financial commitment required by the Creditors. From the day a Creditor files their Proof of Claim form to the implementation of the Debtor’s approved Plan of Reorganization, Creditors can accrue a substantial amount of legal, traveling, and other costs. Rather than investing into a process that might not pan out in your favor, you can sell your bankruptcy claim and save time, money and other valuable resources.  

4. Benefit from Tax Savings

Another advantage to selling your bankruptcy claim comes around tax season. Creditors may be able to earn a tax benefit when they choose to sell their claim over waiting out the bankruptcy proceedings. This is especially true if your claim is sold for less than its original value. Creditors that sell their claims for a discounted value can apply the loss against their income when filing their taxes. Those that choose to continue their involvement in the Ch.11 case do not earn the same tax savings.

Still Deciding?

While you consider the aforementioned benefits, you can use this quick guide we created to evaluate the decision to sell your pending bankruptcy claim.