Trading Bankruptcy Claims … Watch Out for the Finer Points!

Speculating on “bad debt” dates back to colonial times when investors purchased individual claims at a fraction of their value against the strapped colonies with the hopes that the new government would eventually pay the claims in full. While much has changed since then, bankruptcy claims trading is still in practice by sophisticated investors with the acumen to estimate the timing and amount of payment. For sellers, the practice can significantly expedite liquidity, yet it is not with risk.