How to Transform Your Bankruptcy Claim into a Valuable Asset
OPNX (Open Exchange) is the world’s first exchange for trading claims and crypto all on one platform. We believe a transparent, public marketplace for trading claims is necessary and will revolutionize how debtors and creditors interact, especially when it comes to dealing with a crypto bankrtupcy.
Summary:
- A distressed opportunity – although it may seem counterintuitive to trade in a distressed situation, claims trading can offer several significant benefits to creditors and investors involved in a bankruptcy case.
- Few options to trade claims – traditional options for buying and selling claims include working with a bankruptcy lawyer or using agency brokers. However, these options can be inaccessible or costly for most creditors. Challenges include lack of operational transparency, high costs, and pricing uncertainty about the fair market value of the claim.
- The claims trading industry will experience a revolutionary shift with a transparent, order book-based marketplace like OPNX, benefitting all parties involved in a bankruptcy case.
Understanding Chapter 11 Bankruptcy: A Brief Overview
Bankruptcy can be a complex and overwhelming process for all parties involved. When a company files for Chapter 11 bankruptcy protection, it affects not only the company itself, but also its creditors.
Creditors have a legal right to repayment, and they can assert this right by filing a Proof of Claim against the debtor in the bankruptcy court. The claim specifies the amount owed to the creditor based on their accounting records.
Despite filing a claim, creditors are still required to wait for the bankruptcy case to proceed through the court system before receiving any payment. This process can take years, leaving creditors in financial limbo.
Claims trading: What you need to know
Claims trading is a process that involves the buying and selling of claims against a bankrupt company. While the idea of trading in a distressed situation may seem counterintuitive, it can provide a number of key benefits for creditors and investors involved in a bankruptcy case. By liquidating claims, creditors can recover at least some of the money they are owed, while investors can potentially profit from the distressed situation. In this way, bankruptcy claims trading can be a valuable tool for maximizing value and achieving positive outcomes for all market participants involved.
Creditors
Claims trading allows creditors to liquidate their claims against a bankrupt company in exchange for cash, which can help them recover at least some of the money they are owed.
On OPNX, creditors can benefit from:
- Minimized counterparty risk and fraudulent transactions
- Transparent market-based pricing
- Fair price discovery
- Low trading costs
- Added utility by using claims as collateral to trade crypto futures
Investors
Buying up bankruptcy claims can provide investors an opportunity to benefit from the distressed situation of a company and potentially make a profit. Additionally, by trading bankruptcy claims, investors can diversify their portfolio and reduce risk by spreading their exposure to multiple claims instead of just one.
On OPNX, investors can benefit from:
- Pooled liquidity and buying claims in size
- Ability to easily resell claims
- Lower trading costs
- Added utility by using claims as collateral to trade crypto futures
Currently, there are two main options available for those looking to buy or sell bankruptcy claims, each with its own advantages and disadvantages.
Working with a bankruptcy lawyer
You may choose to work with a bankruptcy lawyer to help you navigate the process of buying or selling claims on your own.
Pro: This method may offer you informational advantage to determine whether to sell or buy a claim.
Con: May incur high legal fees and is not a feasible solution for creditors with smaller claim sizes. Sellers also do not know if they are getting the best possible rate as they are only dealing with one buyer rather than a market.
Agency brokers
There are companies that specialize in brokering claim transactions, facilitating negotiations between buyers and sellers OTC, outside of a formalized orderbook-based marketplace.
Pro: Using an agency broker is a viable option for those seeking immediate liquidity.
Con: This method is accessible to larger claim holders who are able to foot high legal fees, but is prohibitive for creditors of smaller claim sizes. Sellers also may find worse pricing as buyers are taking on the risk of the entire claim rather than on order books where buyers can buy merely part of a seller’s order, taking on the exact amount of financial risk they want to take on. Additionally, sellers may also be at an informational disadvantage and may not be able to assess the fair market value of the claim.
Maximize your potential recovery on OPNX’s claim trading market
OPNX believes in a recovery-first approach to helping the crypto industry move forward. There are 20 million claimants worldwide who need to access trapped funds desperately. OPNX offers a simple and effective solution for all market participants. Learn more about the mechanics of claims trading on exchange.
Onboard your claim with OPNX in just 4 steps*
Step 1: Join
Create an OPNX account and complete KYC.
Step 2: Apply
Begin your claim transfer application by providing your claim details. OPNX will then assess and notify you of your transfer eligibility.
Step 3: Sign
If eligible, sign a transfer agreement to initiate the transfer of your claim.
Step 4: Access
Trade your claim to access liquidity you didn't have before.
*Note that eligible claims must be a valid, undisputed, liquidated, enforceable, unsubordinated, non-contingent general unsecured claims against the debtor.
Keywords
Chapter 11 bankruptcy: A chapter of the Bankruptcy Code that provides for reorganization of a debtor's business affairs, debts, and assets. It is generally used by businesses and corporations to reorganize and continue operating while paying off their debts.
Creditor: A person or entity to whom a debtor owes money or other obligations.
Debtor: An individual, partnership, or corporation that is insolvent and is unable to pay its debts as they become due.
Non-contingent: A claim or debt that is fixed and determinable, with no uncertainty or conditionality regarding the payment amount or timing. In other words, it is a claim that is not dependent on the occurrence of any future event or circumstance to be paid.
Secured claims: A claim that is secured by a lien on property or other assets of the debtor.
Proof of Claim: A document filed by a creditor in a bankruptcy case to assert their right to receive payment from the debtor. The proof of claim outlines the amount of debt owed to the creditor and provides evidence to support the creditor's claim.
Undisputed: A claim or debt for which there is no disagreement or dispute between the parties involved in the claim. It is a claim that is generally accepted as valid and is not subject to any legal challenge or dispute.
Unsubordinated: A claim or debt that has priority over other types of debt or claims in the event of default or bankruptcy. It is not subordinate to any other claims, meaning it is paid before other claims or debts are paid.
Unsecured claims: A claim that is not backed by collateral.