Claims-trading and loan-to-own strategies get a bad rap in bankruptcy. While it is true that strategic behavior can harm the integrity of the bankruptcy process if creditors attempt to short-circuit the market, there is no evidence that either claims-trading or loan-to-own intentions alone lead to worse outcomes in bankruptcy. Nevertheless, courts and commentators have recently renewed concerns about strategic behavior in bankruptcy, typically — as in In re Fisker Automotive Holdings2 and In re The Free Lance-Star Publishing Co.3 — by focusing on the identity of the creditor, its motivation and the fact that it seeks, or stands, to profit in bankruptcy.

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Originally published in the American Bankruptcy Institute Journal, Vol. XXXIII, No. 12, December 2014.

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