A chose in action is an intangible property right that you can only enforce through a lawsuit or legal demand, not by physically taking hold of anything. What you own is the power to make someone pay, perform, or compensate you, and if they refuse, to go to court. A debt owed to you, an unpaid insurance claim, a breach-of-contract lawsuit, a patent, and a personal injury claim are all choses in action. The law treats them as property, which means they can be bought, sold, inherited, pledged as collateral, and pulled into bankruptcy.
Everyday Examples
Your bank account balance is a chose in action. The bank holds cash in its vault, but that cash is not yours in any physical sense. What you own is the bank’s legal obligation to pay you on demand, and if the bank refused a withdrawal, your remedy would be a lawsuit.
Insurance works the same way. When you file a claim after a car accident or a house fire, you are exercising a chose in action against your insurer under the policy. Until the insurer pays, all you hold is an enforceable right.
Other common ones:
- Breach-of-contract claims. If a contractor walks off your renovation halfway through, your right to sue for damages is a chose in action.
- Intellectual property. A patent, copyright, or trademark gives the holder an exclusive right enforced through legal action against infringers.
- Stocks and securities. Shares held in a brokerage account are a bundle of rights against the company and the broker, not a physical slice of the business.
- Personal injury claims. Your right to seek compensation from someone who negligently injured you is a chose in action, whether you sue or settle.
How It Differs from Property You Can Hold
The traditional counterpart is a “chose in possession,” meaning tangible property you physically control. Cash in your wallet, a car in your driveway, a painting on your wall. You enjoy those by having them. No lawsuit is needed to realize their value because you already have the thing itself.
Documents are where people get confused. You can hold a promissory note, an insurance policy, or a stock certificate in your hand, but the paper is only evidence of the right. The promissory note proves someone owes you money; the note itself is not the money. Destroying the paper does not destroy the debt, though it makes proving it much harder.
Negotiable instruments like checks and promissory notes blur the line further. Under commercial law, the debt can merge with the instrument for certain purposes, so whoever holds the instrument holds the right. That merger is what lets negotiable instruments move almost as easily as cash.
Selling or Assigning a Chose in Action
Choses in action can be transferred through assignment. The original holder (the assignor) transfers the right to a new party (the assignee), who then steps into the assignor’s shoes and can enforce the claim directly.
This happens all the time in business. A company owed $500,000 by its customers but short on cash can sell those receivables to a factor or collection agency at a discount, and the buyer collects from the customers. The debt collection industry runs almost entirely on assigned choses in action.
Modern commercial law classifies choses in action as “general intangibles” under the Uniform Commercial Code, defined as personal property, including things in action, that does not fall into other specific UCC categories like accounts, instruments, or investment property.1Legal Information Institute (LII) / Cornell Law School. UCC 9-102 Definitions and Index of Definitions That classification is what lets businesses pledge legal claims and payment rights as collateral for secured loans.
When You Cannot Assign
Not every chose in action is freely transferable, and the restrictions matter because a purported assignment that isn’t allowed can be worthless or worse.
Personal service obligations generally cannot be handed off when the identity of the person matters. If you hired a specific architect for her design style, she cannot substitute a different architect without your consent. The reverse also applies when the benefit depends on who is providing it.
Contractual anti-assignment clauses are common and generally enforceable, though UCC Article 9 overrides them in some commercial financing contexts to keep credit markets working. Federal government contracts are stricter still: under federal law, a party who receives a government contract generally cannot transfer it, and a purported transfer voids the contract entirely as far as the government is concerned. A narrow exception allows assignment of amounts owed under the contract to a bank or other financing institution, but only if the contract does not forbid it and the aggregate amount due is at least $1,000.2Office of the Law Revision Counsel. 41 US Code 6305 – Prohibition on Transfer of Contract and Certain Allowable Assignments
Personal injury and malpractice claims face heavier restrictions. Most states prohibit or heavily limit the outright assignment of personal injury tort claims, on the theory that a market in injury lawsuits would encourage frivolous litigation. The historical doctrines behind the restriction are champerty and maintenance, which the common law defined as outsiders funding or purchasing an interest in someone else’s lawsuit for a share of the proceeds.3Legal Information Institute (LII) / Cornell Law School. Champerty Many states have relaxed these rules to accommodate modern litigation funding, but outright sale of a personal injury claim to a third party remains prohibited in most jurisdictions.
Bankruptcy and Death
Because a chose in action is property, it gets swept into any proceeding that deals with your whole estate.
In bankruptcy, virtually all of your property becomes part of the bankruptcy estate, choses in action included. Federal law defines the estate as encompassing “all legal or equitable interests of the debtor in property” at the time the case is filed, and the legislative history confirms that this explicitly includes “choses in action and claims by the debtor against others.”4Office of the Law Revision Counsel. 11 US Code 541 – Property of the Estate If you file for bankruptcy while holding an unresolved insurance claim, a pending contract lawsuit, or even an unfiled cause of action you did not know about, the trustee can pursue or sell that claim for creditors. Failing to disclose a chose in action on your schedules can cost you the right to pursue it later.
When someone dies, their choses in action pass to the estate like any other property. The executor steps into the decedent’s shoes and can pursue pending claims or file new ones. If your aunt was owed $50,000 under a contract and died before collecting, that right becomes an estate asset. The same generally applies to pending lawsuits, though some claims, particularly those for personal pain and suffering, may not survive the claimant’s death depending on the state’s survival statute.
Enforcing the Right, and the Deadline Problem
Owning a chose in action is only as valuable as your ability to enforce it, and the sharpest limit is time. Every chose in action carries a statute of limitations, a deadline after which no court will hear the claim no matter how valid it is.5Legal Information Institute (LII) / Cornell Law School. Statutes of Limitations and Procedural Due Process Miss the window and the right becomes effectively worthless.
Deadlines vary by claim and state. Breach-of-contract claims for written contracts typically run three to six years, with some states going up to ten. Personal injury claims generally have shorter windows, often two to three years from the date of injury. The clock usually starts when the injury or breach occurs, but discovery rules in many states delay the start until you knew or should have known about the harm.
Enforcement does not always mean a full lawsuit. Insurers pay claims voluntarily, debtors agree to payment plans, and breaching parties often settle to avoid court. Settlement is usually faster and cheaper, but it depends on leverage: if the other side knows your limitations period is nearly up, your bargaining position collapses.
Taxes When You Sell a Claim
When you sell a chose in action for cash, the IRS generally treats the proceeds the same way it would treat the money you would have received if you had held the claim through to judgment or settlement. Sell a claim for unpaid royalties, and the proceeds are royalty income. Sell a breach-of-contract claim, and the proceeds are ordinary income. The assignment of income doctrine reinforces this: whoever earned or created the right to receive income is taxed on it, even after transferring the right. The main exception involves compensatory damages for personal physical injuries, which may be excludable under Section 104 of the Internal Revenue Code whether you settle, win at trial, or sell the claim.
Family transfers add complexity. The IRS may recharacterize a transfer to a family member as a gift rather than a sale, especially if the claim is transferred shortly before settlement when its value is relatively certain. Transferring years before any resolution is less likely to trigger that treatment.
Litigation funding arrangements raise their own questions. When a funder advances money in exchange for a share of future proceeds and the arrangement is structured as a nonrecourse loan, the upfront cash generally is not taxable income when received. The later settlement or judgment is still taxable to you, though, even if the money flows directly to the funder. Structure matters here, and getting it wrong can mean a tax bill on money you never kept.