Selling a Bankruptcy Claim (Part 1)

Part 2  |  Part 3

This post is intended to give the non-professional an introduction to selling bankruptcy claims.  Accordingly the post will begin with a basic description regarding bankruptcy claims, and then discuss the actual sale of a claim.  This is part 1 in a 3 part series.


A creditor’s right to payment from the Debtor in bankruptcy is known as a “claim.” While the actual definition under Bankruptcy Code § 101(5) also includes equitable rights, most creditors’ claims involve some sort of right to get paid by the debtor.  A creditor is considered to have a claim even if that claim is disputed by the debtor, the amount is not liquidated, or even if payment is contingent upon on event. 

Claim Types

The three most common types of bankruptcy claims are: 1) secured claims, 2) priority unsecured claims, and 3) general unsecured claims.  Secured claims are claims that are secured by a lien on property in which the estate has an interest, up to the value of the property (See Bankruptcy Code § 506(a)(1) for a more detailed definition).  Priority unsecured claims have no collateral which secure their interest; however, under the Bankruptcy Code, they have priority over general unsecured claims (see Claim Priorities  below).  Example of priority unsecured claims include domestic support obligations, administrative expense claims, and certain types of taxes.   General unsecured claims are claims that are not secured by any collateral and do not have any priority to payment under the Bankruptcy Code.  The most common type of unsecured claim in a Chapter 11 case is a trade claim or vendor claim.

Claim Priorities

Certain claims are entitled to payment before others.  This concept is known as a claim’s priority to payment, or priority for short.  Bankruptcy claim priorities are determined in accordance with Bankruptcy Code § 507.  For example, secured claims are entitled to payment before unsecured claims.  

In a chapter 11 case, the plan of reorganization will classify claims according to their priorities.  All unsecured claims are often placed in a single class (though sometimes are broken into additional classes).  All claims in that single class get paid the same percentage of their claim set forth in the approved plan of reorganization.

The priority of your claim plays a large role as to the dollar amount you may recover in a given case. 

Claims Based on Non-Dischargeable Debt

The debt underlying a claim may be nondischargeable, which means the bankruptcy does not eliminate the right to payment on that debt.  For this reason, claims based on nondischargeable debts potentially yield a greater value.  Secured debts and priority unsecured debts are nondischargeable.  Additionally, there are specific types of debts that are not dischargeable.  A list of these specific debts are listed in Bankruptcy Code § 523.

Scheduled v Unscheduled Claims

As part of filing bankruptcy, a debtor must file schedules listing all of its creditors.  In addition, the schedules must indicate the dollar amount owed to the creditor, and whether or not the debt is disputed, contingent or unliquidated.  There are three different schedules for listing creditors: D, E, & F.  Schedule D lists secured creditors; schedule E lists unsecured priority creditors, and schedule F lists non-priority unsecured creditors.

If you are creditor, it may be the case that the debtor failed to list your claim or listed your claim incorrectly, such as by listing the wrong dollar amount or by placing you on the wrong schedule.  Therefore, as a creditor, before determining what actions you may take to maximize any potential payment on your claim, you should first determine if your debt has been correctly listed in the debtor’s schedules.  You can easily find these schedules by using the search filings feature on Inforuptcy.


This concludes part 1 of this 3 part series "Selling a Bankruptcy Claim."   Stay tuned for part 2 where I will discuss filing proof of your claim with the court.  If you have any questions about this article, be sure to post a comment.