228
Opinion of the Court
unsecured claims; and second, that, because 11 U. S. C. § 1129(a)(7) authorizes creditors with impaired claims (i. e., those getting less than full payment under the plan, like those in Class 12 here) to reject a plan that would give them less than they would get from a Chapter 7 liquidation, courts must have the power to assign a claim the same priority it would have in a Chapter 7 liquidation (in which a noncompensatory prepetition penalty claim would be subordinated, 11 U. S. C. § 726(a)(4)). The Court of Appeals addressed neither of these arguments, however, relying instead on the broad construction given § 510(c) in In re Virtual Network Servs. Corp., 902 F. 2d 1246 (CA7 1990) (subordinating a claim otherwise entitled to priority under § 507(a)(7) to those of general unsecured creditors), and holding specifically that "section 510(c)(1) does not require a finding of claimant misconduct to subordinate nonpecuniary loss tax penalty claims." 53 F. 3d, at 1159. The Court of Appeals took note of the Bankruptcy Court's finding that "[d]eclining to subordinate the IRS's penalty claim would harm innocent creditors rather than punish the debtor" and concluded that "the bankruptcy court correctly addressed the equities in this case." Ibid.
Nothing in the opinion of the Court of Appeals (or, for that matter, in the rulings of the Bankruptcy Court and the District Court) addresses the arguments that the Bankruptcy Court's result was sustainable without reliance on § 510(c). The court never suggested that either § 1122(a) or the Chapter 7 liquidation provisions were relevant. We thus necessarily review the subordination on the assumption that the Court of Appeals placed no reliance on the possibility that the Bankruptcy Code might permit the subordination on any basis except equitable subordination under § 510(c).
So understood, the subordination was error. In United States v. Noland, 517 U. S. 535 (1996), we reversed a judgment said to rely on § 510(c) when the subordination turned
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