Generally when you are considering selling a claim held against a bankrupt company, you need to first make your best guess as to what the claim is worth.
A ton of information can be looked at to make this determination, but without a crystal ball you can never be sure. Some factors to consider include: What Chapter of bankruptcy is the bankrupt company in? If it is Chapter 7
, there may not be anything coming to creditors so it might be a good idea to sell the claim for whatever you can get. If however the Chapter 7 case was deemed an "asset case," meaning the Court is going to seize and sell assets and give the sale proceeds to creditors, then how much debt is there and how much money are the assets likely to bring? (Getting a copy of the bankruptcy petition
lets you see how much debt there is - see Schedules D, E, and F (try calling the attorney for the bankrupt company and ask if they will email you a copy of the bankruptcy petition, which is cheaper than getting a copy from the Court)). If the case is Chapter 11 or Chapter 13
, how much money does the Plan say unsecured creditors will get (assuming your claim is unsecured)? 0%? 10%? Sometimes the percentage of payout the unsecured creditors will get is not specified in the Plan, and you have to get out a calculator and do the math yourself (i.e. say the creditor is paying $100,000 into the Plan over 5 years, you then deduct 9% or so for Trustee
fees, deduct the secured items being paid through the Plan, deduct any other debts/fees being paid through the Plan, and whatever is left is what the unsecured creditors get). If say, after deducting the other stuff there is $20,000 left for unsecured creditors, and Schedule F says there are $200,000 in unsecured debts, then you could expect to get 10 cents on the dollar for your claim.
However, even if it is a 100% Plan, meaning 100% of unsecured claims
are scheduled to be paid, you have to decide how likely it is that the company will actually succeed
in its bankruptcy long enough to pay the claims.
Finally, you have to discount the headache of pursuing the claim in bankruptcy yourself versus simply getting a check from the claim buyer and going on your way. You also need to factor in what $X for selling the claim today is worth versus $N over the 5 year repayment term. In other words, even if you will likely be paid in full over 5 years, would you rather have 50% of the amount right now rather than getting 100% in tiny increments over 5 years? Would 40% today be worth it? 10%?
Once you make your best guess as to what your claim is actually worth, then there is not normally a whole lot left to do when selling the claim: you negotiate an amount with the claim buyer, you get your check, the buyer gets the claim, and you are out of it.
Providing examples is difficult considering how many variables there are. But, let's say you have an unsecured claim for $5,000 against a company in Chapter 11. Let's say the Chapter 11 Plan will result in a payout to unsecured creditors of 20%. This means you will get $1,000 of your $5,000 claim, and the other $4,000 will be discharged and wiped out. Also, you will get that $1,000 in payments of $16.67 per month for 60 months. You have to decide if you would rather have say $500 today, rather than getting $16.67/month for 5 years. Also, getting the $500 today would save you from having to file a Proof of Claim
in the bankruptcy case and would insulate you from the risk that the company will fold and convert to Chapter 7 and pay nothing.
Tough decisions. The transfering of claims is governed by Bankruptcy Rule 3001(e), which you can veiw here:http://www.law.cornell.edu/rules/frbp/rules.htm#Rule3001
You can also read good articles about claim selling here:http://bankruptcy.cooley.com/2006/08/articles/business-bankruptcy-issues/selling-a-bankruptcy-claim-opportunity-and-risk/
I'm not sure if this answers your question, so if not please feel free to follow up and I will try to help.
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Edited by Joseph Ross on 6/4/2010 at 1:55 AM EST