In the present market, if you have multiple investments, the chances of finding one of the companies where you hold stock going bankrupt is normal and not highly irregular. Whether you like it or not, you have to take the call sometimes whether to litigate in court or sell off your claims.
If you have decided to sell off your bankruptcy claims then following the tips below would help you:
1. Research the bankruptcy: Before you sell off your claim to the first, or the highest bidder, whoever it may be, do thorough research of your claims, the status of the case and the status of the bankrupt debtor. Use PACER and industry focused publications to do your research. Documents you must review before selling off your bankruptcy claims include the bankruptcy petition, schedule of assets and liabilities, and any plan for restructuring. However, despite all your research, you might still remain blind about the real pricing, and your only options are to hire an investment manager or talk with other creditors and attorneys engaged in the case.
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2. Ready your bankruptcy claim for sale: Keep in mind that you might have to sell on short notice, so it is always a good idea to prepare your claims for sale by gathering all supporting evidence and documents like invoices, purchase orders or other instruments. Determine the amount of your claim and then check whether the debtor has identified your claim on its Schedule F. You need to find out whether the debtor has misrepresented your claim or marked it as disputed or contingent or whether any objections to your claims have been filed by the debtor in court dockets. If you can identify disputes, then quickly work with a bankruptcy attorney to file a proof of claim and resolve disputes to make your claims saleable.
3. Be in control: Do not panic. Laws and regulations have changed vastly in favor of investors over the past decade and especially following the recession. The real drama begins after the filing of Schedule F, which provides event-based funds and investors the information they need to start purchasing in earnest. Most trading of bankruptcy claims prior to the filing of Schedule F by the debtor are speculative and has to be done with great care. It is quite common for investors to sell off their claims during early stages of a bankruptcy when rumors and speculations abound. Be in control - time it right. Whether you sell early to cash in on the frenzy or sell later based on concrete information, it's your call, so don't give in to panic.
4. Research investors: Before trading your bankruptcy claims, shop around for investor funds and take your time. Usually, event-based investors send out extremely low offers across as large a territory they can during initial phases of a bankruptcy. Desperate creditors often end up selling to the first investor who happens to contact them, because they lose the mental strength to remain in control, do research, and then decide. Don't wait for buyers to come to you. Research firms that buy distressed debt and regularly purchase bankruptcy claims. You can also use a claims broker, an investment manager, or just list your claim for sale on sites like eBay, and then sit back and watch things happen.
5. Keep your wits about you: While you need to be in control and time things right, you also need to be realistic. Sometimes, turning down the first offer can also hurt you, and this is where research and information comes to your aid in trading in your bankruptcy claims. Never take things personally, and don't feel insulted because an investor in distressed claims happens to make an offer that seems too low to you. In a vast majority of cases, unsecured claim holders are fortunate to recover pennies on the dollar. When investors are willing to shoulder your risk, especially, even before the filing of Schedule F, don't turn down the offer, but do some quick research and calculation, as also investor shopping before selling of your bankruptcy claims.
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