The ability of bankruptcy courts to recharacterize a putative debt claim as an equity interest in order to ensure that form does not prevail over substance is beyond cavil. There is considerable uncertainty, however, over whether this power derives from the inherent equitable authority of the bankruptcy courts to subordinate a purported claim to ensure attainment of system-wide objectives or from the courts' statutory authority to allow and disallow claims. The answer to that question has significant ramifications far beyond the question of debt recharacterization, implicating both the division of authority between state and federal law in bankruptcy cases and the policies and purposes of the bankruptcy regime. This Article takes the position that "subordination," not "disallowance," is the most accurate metaphorical concept for understanding recharacterization and that by locating the source of the courts' authority under the statutory power to equitably subordinate claims, the issue will properly be resolved under a federal framework and with specific attention to the unique aims of the bankruptcy system.
|Original language||English (US)|
|Number of pages||80|
|Journal||Rutgers Law Review|
|State||Published - Mar 1 2016|
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