What is equitable subordination?

Equitable subordination is a legal concept used in Washington State. It is a form of protection for creditors and is used when a court deems that one creditor’s claim is more important than another. This concept is typically used in the event of a company’s bankruptcy and it allows the court to decide which creditors are to be paid first. In order for a creditor to qualify for equitable subordination, the creditor must prove that another party involved in the bankruptcy case acted inappropriately or unfairly, such as by engaging in fraud or other illegal activity. Once a creditor is granted equitable subordination, that creditor will be placed in line ahead of any other creditors who were not granted equitable subordination. This means that the creditor with equitable subordination is more likely to receive payment for their debt in full if the bankruptcy is resolved. Equitable subordination is important because it allows creditors who do not have a higher interest in the company, or those who have not been mistreated by the company’s owners, to still receive some payment for their debt. Without the equitable subordination, a creditor may not get repaid at all if the company defaults on its debt.

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What is equitable subordination?

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