The Expansive Equitable Powers of Bankruptcy Courts Under Section 510(C)

In a recent decision, the U.S. Bankruptcy Court for the District of New Jersey subordinated a 502(h) claim to prevent the claimant from being paid in full prior to investors defrauded by the debtors’ pre-petition operation of a Ponzi scheme. In its decision, the court maintained that the equitable powers of bankruptcy courts were sufficiently broad to subordinate a claim on equitable grounds under Section 510(c) and that there is nothing in the Bankruptcy Code that prevents a court from so doing.

6 minute read August 31, 2025 at 11:03 PM
By
Lawrence J. Kotler and Klara Bradbury
The Expansive Equitable Powers of Bankruptcy Courts Under Section 510(C)

In a recent decision in the case of In re National Realty Investment Advisors, Case No. 22-14539, the U.S. Bankruptcy Court for the District of New Jersey subordinated a 502(h) claim to prevent the claimant from being paid in full prior to investors defrauded by the debtors’ pre-petition operation of a Ponzi scheme.

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