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Subrogation Claims in Bankruptcy
In many cases, a creditor in a bankruptcy case (the 'Primary Creditor') has the benefit of a guaranty, an escrow, or a letter of credit provided by a third party (the 'Subrogee') to which it can turn in order to satisfy its claim against the debtor. When the Subrogee pays the debtor's obligation to the Primary Creditor after the debtor has filed a petition in bankruptcy, the Subrogee will in most cases be entitled to assert a subrogation claim against the debtor in the bankruptcy case. Below, we discuss the relevant considerations in determining whether a subrogation claim is valid.
Subrogation
Subrogation is 'the substitution of one party in place of another with reference to a lawful claim or right, so that the one who is substituted succeeds to the position of the other in relation to the other's claim or right.' Robbins International, Inc. v. Robbins MBW Corp. (In the Matter of Robbins International, Inc.), 275 B.R. 456, 470 (S.D.N.Y. 2002) (citing The Aetna Casualty and Surety Co. v. Clerk, U.S. Bankruptcy Court, New York, NY (In re Chateaugay Corp.), 89 F.3d 942, 947 (2d Cir. 1996)). Subrogation is an equitable remedy that is a derivative right, arising from satisfaction of a claim held by a third party against another party. In re Hamada, 291 F.3d 645, 649 (9th Cir. 2002). See also See Aetna Casualty and Surety Co. v. Clerk, U.S. Bankruptcy Court, New York, NY (In re Chateaugay Corp.), 89 F.3d 942, 948 (2d Cir. 1996).
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