Treatment of 'Double Dips' in Bankruptcy

Corporate restructuring team co-leader Jim Millar discussed the “double dip” – the ability of a creditor to have two claims against a bankruptcy debtor to recover the amount owed on a single debt – in an article for the Creditor Rights Coalition. 

Millar notes that Section 502(e)(1)(B) of the Bankruptcy Code aims to disallow redundant claims against a debtor. He writes that the intention behind the statute is to codify equitable notion of fairness among creditors and equality of distribution. By its statutory terms, however, it is limited to contingent claims for reimbursement or contribution. 

“While a Court has never ruled on the applicability of Section 502(e)(1)(B) to a double-dip financing to the author’s knowledge, Section 502(e)(1)(B) may well have application to the financing double dip world,” Millar writes. “If a court were to look through the form to the substance and economic reality of a given situation, it could use this section to prevent the double dip. Moreover, by its very terms, Section 502(e)(1)(B) may apply.”