Selling a claim in a bankruptcy case can offer several advantages. It provides an opportunity for immediate payment, which can be beneficial as the resolution of claims in bankruptcy cases can often take months or even years. Selling also ensures payment in cash, eliminating the risk of receiving other forms of distributions such as stock or promissory notes. Additionally, it guarantees a certain amount, removing the uncertainty that often comes with bankruptcy distributions. Lastly, selling a claim can save time and expense as it eliminates the need to monitor the bankruptcy case or hire an attorney to protect your rights.
However, there are also potential disadvantages to selling your claim. It may result in reduced recoveries as the immediate sale could yield less than waiting for distributions through the bankruptcy case. Many claim purchase agreements also include payback obligations if the claim is reduced or expunged. Selling the claim also means losing any setoff and recoupment rights against the debtor. Furthermore, selling the claim may result in an inability to serve on the creditor’s committee, as the general rule is that once a claim is sold, the creditor must resign from the Committee.
In conclusion, before deciding to sell a bankruptcy claim, it’s important to carefully consider these pros and cons. Engaging with experienced bankruptcy counsel can provide valuable guidance through this process, helping to ensure that the decision made is the most beneficial for your unique situation. Read the full article here.