The U.S. bankruptcy claims trading market has grown in recent years, from one with a few specialized firms investing in small vendor trade claims into a multibillion dollar industry. Major investment banks and hedge funds now regularly buy and sell claims arising from a variety of transactions, including swap terminations, litigation judgments, debt issuances and rejected real estate and equipment leases. With individual claim amounts frequently in the millions (and sometimes billions) of dollars, the volume of claims bought and sold has increased significantly.
As a procedural matter, upon the completion of each claim purchase, the purchaser must file a form notice or evidence of transfer with the bankruptcy court in order to update the court’s records regarding the record owner of the claim. Pursuant to Bankruptcy Rule 3001(e), bankruptcy court clerks are required to send a notice to the seller regarding the filing of a notice of transfer and allow the seller the opportunity to object to the extent the transfer was not authorized.
On May 1, 2013, U.S. bankruptcy courts will begin charging a new $25.00 fee each time a notice of transfer of claim is filed pursuant to Bankruptcy Rule 3001(e). Although the new fee is nominal, this is a newsworthy development in the bankruptcy claims trading market as previously there was no charge for such transfers.
The Judicial Conference of the United States approved the new fee in September of 2012, and the fee appears as item 20 on the Bankruptcy Court Miscellaneous Fee Schedule.1 According to public notices issued in connection with the implementation of the new fee, the approval of the transfer fee was based in part upon the impact the increasing volume of claim transfers had on the workload of the bankruptcy courts. Here are a few specific points to be aware of regarding the new $25.00 fee:
- The fee is applicable to full as well as partial transfers of claims.2
- If multiple notices of transfers are filed at one time, the fee will apply for each individual claim that is transferred.
- In cases where multiple claim numbers originally exist for a single bankruptcy claim, such as when amended or duplicative proofs of claim are filed, the fee will apply to each claim number transferred.
- The fee must be paid by credit card upon the filing of the notice of transfer via CM/ECF (Case Management/Electronic Case Files - the bankruptcy courts’
electronic document filing system); accordingly, the party filing the transfer (usually the buyer) must be authorized to pay this fee by credit card.
Prior to May 1st, parties who have CM/ECF accounts with bankruptcy courts should review and, if necessary, update their accounts to ensure that they are enabled for electronic payment by credit card.
The new nominal fee adds another layer of cost to a bankruptcy claim transfer, which will likely be paid by the purchaser unless the parties to a transaction agree to otherwise. In situations involving the transfer or allocation of a large number of claims involving multiple funds, the additional costs may be large enough to become material in certain individual cases. Generally, the new fee will not materially affect the claims trading market and will simply be absorbed as another cost of doing business.