Secured Creditor and Bankruptcy Claim Buyer Representation

If a creditor receives notice that their debtor has filed for Chapter 7 or Chapter 11 bankruptcy protection, they now officially have a “claim” against the debtor.

A bankruptcy claim purchaser or buyer may offer a creditor the option to purchase the bankruptcy claim for cash. However, these transactions can have substantial financial complications and consequences. Finding legal representation as a creditor or a buyer in a bankruptcy claim purchase can ensure that your legal rights are protected.

Secured Creditor and Bankruptcy Claim Sales

A secured creditor can have tremendous leverage in a bankruptcy case, so it is critical that the secured creditor receives proper legal advice. In certain circumstances, the secured creditor can recover from the bankruptcy case its interest, attorney’s fees and cost under Section 506(b) of the Federal Bankruptcy Code. Under other circumstances, a secured creditor needs to ensure that its collateral is not diminishing in value by requesting proper relief from the bankruptcy court, which include monetary payments.

A secured creditor may attempt to monetize their bankruptcy claim through a sale to a bankruptcy claim buyer. The bankruptcy claims trading market is complex and trading bankruptcy claims require a great deal of expertise and knowledge.

There are many substantial legal issues that must be resolved in the transaction of a bankruptcy claim sale. In order to protect your legal interests as a seller of a bankruptcy claim, you must recognize the following legal facts:

  • Claims purchase agreements are not uniform and should be handled through careful legal negotiations, preferably with legal representation.
  • Section 502(d) of the Federal Bankruptcy Code will not allow any claim from an entity that received a transfer that is avoidable as a preference unless such entity paid the amount or turned over the property for which such entity is liable.
  • Claims purchasers or buyers will attempt to protect themselves from any disallowance of their claims on 502(d) grounds

Ultimately, this means that while claims purchasers and buyers gamble that their purchase of claims will provide financial gain, the opposite could be true as well.

Under Section 502(d) if the holder of a claim fails to pay into the bankruptcy estate the amount of any liability for having received this preferential transfer, the claim might be completely disallowed. Having an experienced bankruptcy attorney throughout the bankruptcy claim buying process can ensure that your rights are protected.

Other Bankruptcy Claim Legal Issues

The area of bankruptcy claim sales is legally complex and challenging. Ensuring the validity of a claim, limiting opportunities for claw-back to the impairment or potential impairment, anti-assignment clauses, and determining if a claim is subject to the 502(d) disallowance are all substantially complex legal issues. Courts remain divided on some issues, such as whether a purchase of a claim is merely a sale of the claim, or whether it is an assignment.

Experienced Representation for Secured Creditors and Bankruptcy Claim Buyers in California

The experienced bankruptcy attorneys at Goe Forsythe & Hodges LLP are familiar with both the rights and responsibilities of both secured creditors and bankruptcy claim buyers and can assist in any negotiated purchase agreements.

We can help preserve the bargain for the bankruptcy buyer while mitigating the risks of the secured creditor as a seller. Contact our legal team to find out how we can help you with this legally complex transaction at 949.798.2460 or via email today


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