What Is the Meaning of Trade Claim?

A growing market exists for trade claims in the United States.

A creditor makes a trade claim to a debtor when the debtor fails to pay the creditor. Investors purchase trade claims with the intention of making financial gains in the future. Trade claims are common in bankruptcy cases.

Trade Claims Defined

When a debtor files for bankruptcy under Chapter 11, some creditors may never be fully compensated for outstanding claims held against the debtor. Creditors can sell their claims to investors and institutions willing to purchase them with the intention of enforcing the claims against the debtor at a later date.

Motivations for Selling a Trade Claim

A trade creditor will sell its claim to an investor with the primary intention of making an immediate financial return. By doing so, a trade creditor avoids the risk of the debtor delaying repayment or not repaying at all.

Motivations for Buying a Trade Claim

The purchaser of a trade creditor's claim intends to make a profit by trying to resell the claim at a higher price than the purchase price. However, the trade creditor also may buy a trade claim to obtain control over a restructured debtor.

References

• WestLaw: Creditors Bearing Gifts: Bankruptcy Trade Claims Cash Out

Resources

• US Courts, Reorganization Under the Bankruptcy Code