Define: Equitable Subordination

Equitable subordination is a legal doctrine that allows a court to re-order the priority of claims against a debtor’s assets in certain circumstances.

Equitable subordination can be applied when a creditor has engaged in misconduct, such as fraud, inequitable conduct, or gross negligence, that has harmed other creditors.

The purpose of equitable subordination is to prevent a creditor from unfairly benefiting at the expense of other creditors and to ensure a fair distribution of the debtor’s assets.

A creditor can seek equitable subordination by filing a motion with the court and providing evidence of the creditor’s misconduct and the harm it has caused to other creditors.

A court will consider factors such as the creditor’s conduct, the harm caused to other creditors, and the overall fairness of re-ordering the priority of claims.

Yes, equitable subordination can be applied to secured creditors if they have engaged in misconduct that has harmed other creditors.

Yes, equitable subordination can be applied to insiders of the debtor if they have engaged in misconduct that has harmed other creditors.

If equitable subordination is granted, the creditor’s claim may be re-ordered in priority, reduced, or even disallowed altogether.

Yes, equitable subordination can be used in bankruptcy cases to re-order the priority of claims against the debtor’s assets.

Creditors who believe equitable subordination may be appropriate in their case should consult with a qualified attorney to discuss their options and determine the best course of action.