• Distressed Debt Buyers Beware: Delaware Bankruptcy Court Holds That Claim’s Defect Follows Claim Purchaser
  • June 18, 2012 | Authors: Michael S. Fox; Adam H. Friedman; Jonathan T. Koevary
  • Law Firm: Olshan Frome Wolosky LLP - New York Office
  • An age-old question of commercial law is when does a purchaser of property take the property free and clear of defects? For distressed debt purchasers, the specific question is whether the purchaser takes the debt free and clear of the debtor’s claims against the seller. Can a purchaser of a claim enjoy rights superior to the claimant from whom it purchased the claim? The influential United States Bankruptcy Court for the District of Delaware in In re KB Toys, Inc. et al. (“KB Toys”) has recently said no, holding that the defects follow the claim.