Assigning Bankruptcy Claims to Claims Traders

What does assigning bankruptcy claims to claims traders encompass?

Assigning bankruptcy claims to claims traders involves the transfer of a creditor’s rights to collect on a debt from the original creditor to a third-party investor or claims trader. In the context of bankruptcy legal services for creditors in Florida, claims traders can purchase claims from the original creditor at a discounted rate, expecting to recover more than the purchase price during the bankruptcy process.

For example, under Florida and federal law, a creditor with a claim against a debtor in a Chapter 11 bankruptcy case may decide to assign their claim to a claims trader. The claims trader would negotiate a purchase price with the original creditor and, once the claim is assigned, step into the shoes of the original creditor in the bankruptcy proceedings. This process allows the original creditor to receive a portion of their claim amount upfront and avoid the uncertainty of the bankruptcy process.

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Which Florida laws and regulations apply to assigning bankruptcy claims to claims traders?

In Florida, the process of assigning bankruptcy claims to claims traders is primarily governed by federal law, as bankruptcy proceedings fall under federal jurisdiction. The Bankruptcy Code, specifically 11 U.S.C. § 101 et seq., provides the framework for bankruptcy cases, including the treatment of claims.

A critical aspect of the Bankruptcy Code relevant to claims traders is the concept of “allowance” and “disallowance” of claims, governed by 11 U.S.C. § 502. This section sets forth the process by which claims are either allowed or disallowed in a bankruptcy case and, thus, directly impacts claims traders who have acquired assigned claims.

Furthermore, the Federal Rules of Bankruptcy Procedure, specifically Rule 3001, detail the requirements for filing and transferring proofs of claim in a bankruptcy case. Claims traders must follow these procedural rules to ensure their assigned claims are correctly recognized and treated during the bankruptcy process.

How does assigning bankruptcy claims to claims traders connect to the bankruptcy process?

The assignment of bankruptcy claims to claims traders directly affects the bankruptcy process as it introduces a new party into the proceedings. By purchasing claims from original creditors, claims traders essentially step into the shoes of the original creditors, participating in the bankruptcy case and seeking to recover a higher amount than the purchase price. However, purchasing claims can introduce potential litigation risks, such as disputes over the assignment’s validity, the assigned claim’s priority, or the claim’s value.

For instance, under 11 U.S.C. § 502, a claim can be subject to objection, leading to litigation if the debtor, the trustee, or another party in interest disputes the assigned claim’s validity or amount. Additionally, a claims trader’s motivations may differ from the original creditor, potentially leading to more aggressive tactics in pursuit of recovery and increasing the likelihood of litigation.

When a set of facts is appropriate for bankruptcy services, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized bankruptcy advocacy, please contact our office to set up your initial consultation.

What steps should creditors take to mitigate the risks of assigning bankruptcy claims to claims traders?

Consider the following strategies:

• Perform due diligence: Before assigning a claim, creditors should conduct thorough due diligence on potential claims traders, including their track record, litigation history, and financial stability. Comprehensive due diligence can help ensure a smoother assignment process and reduce potential disputes.
• Review assignment agreement: Creditors should work with experienced bankruptcy counsel to draft and review the assignment agreement to ensure it clearly outlines the rights and responsibilities of both parties. A well-drafted agreement can minimize ambiguities and potential disputes over the assignment.
• Comply with procedural requirements: Creditors must adhere to the Federal Rules of Bankruptcy Procedure when assigning claims. In addition, properly filing and transferring proofs of claim can help avoid challenges to the assigned claim’s validity.
• Monitor bankruptcy proceedings: Even after assigning a claim, creditors should monitor the bankruptcy case and stay informed about any developments that may impact their claim or the claims trader’s actions. Keeping an open line of communication with the claims trader can help address any concerns and mitigate potential litigation risks.
• Consult with legal counsel: Engaging experienced bankruptcy counsel throughout the assignment process can help creditors navigate complex legal issues, ensure compliance with relevant laws and regulations, and proactively address potential litigation risks.

Please contact our office to set up your initial consultation to see what forms of legal protection and advocacy may be available for your unique situation.

How should bankruptcy counsel facilitate assigning bankruptcy claims to claims traders?

Counsel should consider the following to protect their clients:

• Legal compliance: Counsel ensures compliance with federal and Florida bankruptcy laws and Federal Rules of Bankruptcy Procedure, particularly in transferring proofs of claim and adhering to notice requirements.
• Drafting and reviewing assignment agreements: Experienced bankruptcy counsel helps prepare and review assignment agreements, safeguarding the parties’ interests and minimizing ambiguities that may lead to disputes.
• Due diligence: Counsel assists in conducting due diligence on claims traders, evaluating their litigation history, financial stability, and track record to ensure a smooth assignment process.
• Negotiation support: Bankruptcy counsel supports creditors in negotiating favorable terms in the assignment agreement, maximizing the creditor’s return and protecting their rights.
• Monitoring bankruptcy proceedings: Counsel keeps creditors informed about developments in the bankruptcy case even after the assignment, ensuring that the claims trader’s actions align with the creditor’s interests.

Frequently Asked Questions

1. How does the bankruptcy court treat the assignment of claims to claims traders?

Bankruptcy courts typically treat claims traders as the successors to the original creditors’ rights, allowing them to participate in the bankruptcy case and seek recovery on the assigned claim. However, the claims trader must comply with the Federal Rules of Bankruptcy Procedure and applicable state laws, and their claims may still be subject to objections or challenges.

2. Are there any restrictions on assigning bankruptcy claims to claims traders?

Certain restrictions may apply depending on the bankruptcy case’s specific claim, jurisdiction, or circumstances. Therefore, consulting with experienced bankruptcy counsel is essential to identify potential restrictions or limitations on assigning claims in a particular case.

3. How do claims traders profit from purchasing bankruptcy claims?

Claims traders profit by purchasing claims at a discount from the original creditor and then seeking to recover a higher amount through bankruptcy. This recovery may come from cash distributions or other assets from the debtor’s bankruptcy estate. The difference between the purchase price and the recovery amount represents the claims trader’s profit.

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Crucially, this overview of assigning bankruptcy claims to claims traders does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.