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New Bankruptcy Claims Transfer Fee to Take Effect May 1

Federal bankruptcy courts will institute a new $25 fee for filing evidence of claims transfers, transactions in which bankruptcy claims are sold by one creditor to another, usually as part of a speculative investment. The fee, approved last September by the Judicial Conference of the United States, will take effect May 1.  

Bankruptcy claim transfers are a thriving, if little-known, part of the bankruptcy process, and constitute a multi-billion-dollar industry. 

Although bankruptcy claims can be purchased by individuals, they are more commonly purchased by commercial entities, which routinely buy large numbers of claims, often at a significant discount. The claims are purchased from creditors who are willing to take a reduced price to have cash in hand or are concerned about how their claims will fare in the bankruptcy process.

The entities purchasing the bankruptcy claims typically seek to make a profit when the bankruptcy case is ultimately settled, or by selling the claims to other buyers. These entities may also purchase claims in order to obtain a large stake in a company.  Bankruptcy claim transfers have existed since the earliest days of the Republic, according to a 2010 article (pdf) in the University of Pennsylvania Journal of Business Law.

The fee will be assessed by bankruptcy courts on each individual claim or partial claim that is transferred, and it must be paid by the creditor that files evidence of the transfer (typically the claim transfer form) with the courts. Debtors filing bankruptcy will not be affected by the fee.

The fee must be paid by credit card, using, when the claims transfer is filed with the courts’ Case Management/Electronic Case Files system, or by whatever means is designated by the court if the claim transfer is not filed electronically.   

In considering this fee, the Judicial Conference Committees with jurisdiction over bankruptcy fees recognized the impact a transfer of a claim has on the workload of the bankruptcy courts, including impact on court time and resources. Bankruptcy Rule 3001(e) requires the clerk of court to provide notice on a transferred claim, and there are additional notice and hearing requirements if an objection is made to a transfer.

In the event that multiple claims transfers are filed at one time by one entity (batch filing), the $25 fee will be charged for each individual transaction. The fee applies to any transfer of a claim that is filed, whether it is a partial transfer of the claim or a transfer of the entire amount of the claim.

Companies that buy and sell claims should ensure that the individual filing the claim has the authority to pay the fee by credit card. Entities that transfer claims also should be aware that courts are reviewing user accounts, account access, and the number of accounts authorized for a particular entity in anticipation of this fee.

For questions regarding the claim transfer fee, please contact Mary Fritsche, Bankruptcy Court Administration Division at 202-502-1540. 

Related Topics: Bankruptcy Courts