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Selling Bankruptcy Claims: Opportunities and Risks

Originally published: April 2012

In the last several years, the size, scope, and complexity of the bankruptcy claims marketplace has changed dramatically. Once dominated by individual trade creditors hoping to receive some value for their uncollected debt in Chapter 11 bankruptcies, buying and selling unsecured bankruptcy claims has become big business. Hedge funds and investments banks are seeking to earn significant profits by buying up bankruptcy claims, especially in large bankruptcies.

Now, just about any unsecured trade creditor may be approached to sell (transfer) its claim to a third party. Although these claims are a liability to the creditor, buyers consider them assets for which they are willing to pay cash.