INVESTING IN TRADE CLAIMS:
What is a 'Claim'?
Bankruptcy or distressed claims are monies owed to creditors by companies that have filed for Chapter 7, Chapter 11, or are undergoing an out of court workout. Due to court protections for corporate debtors (i.e. Automatic Stay) many ‘trade creditors’ are left holding overdue accounts receivables that cannot get paid until the completion of the bankruptcy process.
Why are Claims Sold?
Today’s market economy is categorized by tight lending practices. Consequently, there is a desire by financial officers to monetize claims early in the bankruptcy process, and free that for reinvestment.
Where do Claims Trade?
Unsecured claims have no established marketplace. Therefore, they trade over-the-counter (“OTC”).
How Big is the Market?
Unsecured claims represent a large portion of the $1 trillion in bankruptcy claims traded each year.