Understanding Special Claims in Bankruptcy‍

When a creditor first learns their client has filed for bankruptcy, a natural concern is maximizing their recovery to the extent possible within the law. Although everyone with a right to payment gets a claim, the Bankruptcy Code provides many different subclasses of claims that are entitled to different treatments. (This information is not intended as legal advice; please consult a legal professional for specific guidance.)

‍

Secured vs. Unsecured Creditors

The biggest bifurcation of bankruptcy claims is between secured creditors and unsecured creditors.

• Secured creditors have a perfected property right in specific collateral. Obtaining a security interest in property often requires significant paperwork, so claimants unsure if they are secured are generally not secured.

• Unsecured creditors have a general right to payment without a specific piece of property serving as collateral if the counterparty cannot repay. Most trade vendors are unsecured creditors, and generally, unsecured creditors are pari passu, meaning they will share equally in proceeds available after secured creditors receive the value of their collateral.
  ‍

Within the realm of unsecured creditors, there are several subcategories often entitled to priority treatment.

What Are My Options If I Don’t Want to Wait?

Bankruptcy claims come in many types. Some are paid 0%, while others are paid 100% plus interest. Payment timelines can vary, with some cases paying creditors within months and others over years. There is a market for selling bankruptcy claims for cash, consisting mainly of financial buyers experienced in purchasing these assets and assessing their risks. X-claim is a marketplace designed to help creditors market their claim to more purchasers than they can on their own. We encourage you to reach out with your claim and case information, and we can help you monetize your claim.

My Claim Is Unsecured. What Else Can I Do?

Certain unsecured claims are given “priority” status under the Bankruptcy Code. Although there are numerous types of priority unsecured claims, we focus here only on those generally relevant to creditors in corporate bankruptcy:

• Administrative expense claims: These are costs associated with the bankruptcy proceeding, including claims for goods delivered to the debtor within the 20 days before the petition and goods or services provided after the petition date.
• Wage, salary, and commission claims: These are given priority but have a statutory cap. Many such claims are requested to be paid in the ordinary course of business and are generally approved by the court.
• Consumer deposits: These also have priority and a statutory cap, typically being small claims.
• PACA claims: These arise under the Perishable Agricultural Commodities Act for agricultural products delivered to the debtor. If you delivered perishable agricultural goods, consider investigating this type of claim.
• Mechanic liens or other liens: These claims generally arise under state law. If your business normally has the right to file a lien for customer non-payment, you may be entitled to a lien in the bankruptcy case.
• Convenience claims: Although not statutory, these often arise in practice where smaller claims are paid an amount different from general creditors.
  ‍

A good guiding question in the short term is: Do I provide goods to the Debtor? If so, did I provide goods that were received in the 20 days before the petition? If yes, you may be entitled to a 503(b)(9) claim. Similarly, consider if you provide perishable goods or have state law lien remedies.

Critical Vendors

Although nothing in the Bankruptcy Code defines a critical vendor, the Debtor generally has certain vendors necessary for a successful reorganization. They may be providers of critical services or goods for resale. To entice these critical counterparties to continue working with them, Debtors often motion to pay these vendors in exchange for the vendor signing an agreement to continue providing credit, goods, and services. Watch the docket for a critical vendor motion in your case.

Contingent, Unliquidated, and Disputed Claims

When the Debtor files their schedules listing all claim amounts owed to creditors, they have the right to mark claims as “contingent,” “unliquidated,” or “disputed.”

• Contingent claims depend on a future event.
• Unliquidated claims have undetermined amounts.
• Disputed claims have a value but are contested by the Debtor.

These claims are generally worked through during the reorganization process but require the claimholder to file a proof of claim.

Xclaim can help

Billions of dollars of claims are created in reorganizations every year. The process is often opaque and confusing to creditors who may have only one bankruptcy claim over their entire business career. Retaining a professional or attorney to manage a claim is often a disproportionate cost for creditors. It also increases short term cash outflows. Selling a claim provides a cash inflow, which derisk a situation which is not a core business risk. Using a marketplace like X-claim helps bring more buyers to your claim and improves the offer for your claim. Visit https://www.x-claim.com to register to sell your claim today.

_‍