Equitable Subordination

Summary

This practice note discusses equitable subordination. Equitable subordination allows the bankruptcy court to reorder a creditor's claim position based on the creditor's inequitable conduct. Section 510(c) of the Bankruptcy Code specifically authorizes equitable subordination but is silent as to when it is appropriate. 11 U.S.C. § 510(c). Courts usually apply a judicially created test to govern their decisions on equitable subordination.