Bankruptcy Claim Trading primarily involves two parties: a buyer and a seller. As the selling party, the creditor is selling their uncollected receivable against a debtor in a bankruptcy case. As the buying party, a bankruptcy claims trading firm purchases the ownership and claim rights from the creditor in the bankruptcy case.
Creditors involved in a bankruptcy case can be companies or individuals, typically buyers or bankruptcy claim traders are professional investors such as hedge funds or regulated investment companies who have long term lock up capital and have the time, expertise and legal resources required for these lengthy processes.
Aside from the buyer and the seller, other parties may also be involved in the claims trading process, such as: Legal and Financial Advisers, Brokers, Bankruptcy Claims Agents, and the Bankruptcy Court. Legal and Financial Advisers for both parties may be asked to consult on the transaction, assist in the dealings with the Bankruptcy Court, assess the claim value, perform due diligence, conduct other bankruptcy claims services and ensure that all interests are aligned by reaching a contractual agreement.
Bankruptcy claims agent may be logistically involved as a contracted partner of the debtor within a Bankruptcy Court case and act as the approved legal administrator for the Claims Registrar. Thus, claim transfers and court filings would flow through a bankruptcy claims agent’s administrative operations.
Although the Bankruptcy Court does not oversee the details of a claim trade, the claim transfer in ownership is officially recorded with the court, and the debtor in the case is notified. Any legal objections, dismissals, or modifications to payment terms on claims are ruled by and approved by the Bankruptcy Court.
Claims trading is both a legally and financially complex transaction. Therefore, the process can differ from trade to trade. It normally takes years before there is a distribution and the claims can change hands on multiple occasions during that time as trading can begin as soon as the bankruptcy petition is filed.