KB Toys Highlights Pitfalls For Bankruptcy Claims Buyers

Law360, New York (December 3, 2013, 7:46 PM EST) -- In In re KB Toys,[1] the U.S. Court of Appeals for the Third Circuit recently held that a claim that is disallowable under § 502(d)[2] if held by the original claimant is also disallowable in the hands of a purchaser or subsequent transferee.

In other words, if a creditor sells or assigns its claim to a claims trader and the creditor later becomes liable on a preference or fraudulent transfer,[3] the claim may be disallowed in the hands of the claims trader if the creditor fails...
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