Emory Bankruptcy Developments Journal


Judicial recharacterization is a judge-made doctrine that allows a court to recharacterize a creditor's claim as an equity investment. Courts use judicial recharacterization as a mechanism to reorder the priority of payments if the judge believes that the true nature of the transaction has the characteristics of an equity relationship from the outset, despite being classified as a loan. Recent debate has centered around the unwieldy and unpredictable nature of these recharacterizations. Creditors often face dramatic differences in the outcome of litigation depending on the jurisdiction in which their claim arises. Courts facing questions of judicial recharacterization have analyzed these aspects in dramatically different ways creating a split among the circuit courts on all three aspects. This Comment argues for the codification of the doctrine of judicial recharacterization.