Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026
- Sponsor
- Rep. Sykes, Emilia Strong [D-OH-13]
- Committees
- Judiciary Committee (primary)
- Last action
- Apr 20, 2026
Bottom line
The bill aims to curb perceived abuses of the Chapter 11 bankruptcy system, particularly by companies using complex corporate structures to shield assets or delay litigation, by making it easier to dismiss such cases and restricting non-debtor stays.
What it actually does
This bill significantly amends Chapter 11 of the U.S. Bankruptcy Code by establishing new grounds for dismissal of bankruptcy cases deemed objectively futile or filed in subjective bad faith. It introduces specific presumptions for bad faith, including for manufactured venue or certain corporate restructurings. Crucially, it limits the automatic stay and judicial equitable powers to prevent the protection of non-debtor entities in cases involving specific corporate transactions and 'protected claims,' particularly those related to mass torts.
Proponents argue
Supporters argue that this legislation is essential to protect creditors and victims from strategic bankruptcy filings that are not aimed at genuine reorganization but rather at evading liabilities or manipulating legal outcomes. They contend it enhances corporate accountability, prevents abuse of the bankruptcy system by debtors who manipulate corporate structures or venue, and ensures justice for those harmed by corporate misconduct.
Opponents contend
Opponents might argue that the bill could hinder legitimate reorganizations, create significant uncertainty for debtors and their affiliates, and potentially make it harder for companies, especially those facing mass tort liabilities, to navigate complex financial distress. They may also contend that the broad definitions and conclusive presumptions could inadvertently ensnare legitimate businesses and disrupt established legal frameworks for resolving complex liabilities.
The bill is concise, allowing for a quick read, but its profound legal implications and the complexity of its definitions require careful consideration and understanding of existing bankruptcy law.
Section 2(1), amending 11 U.S.C. 1112(b)(2)(A)
24-Month Deadline for Filing Chapter 11 Plan
This provision changes the requirement for a Chapter 11 reorganization plan to be filed 'within a reasonable period of time' to a strict statutory deadline of 'not later than 24 months after the date of the filing of the petition.' This aims to expedite the bankruptcy process and prevent prolonged proceedings.
Supporters argue
Supporters argue this deadline prevents debtors from unduly prolonging bankruptcy proceedings, which can be costly and detrimental to creditors, and ensures a more efficient administration of justice.
Critics contend
Critics might contend that complex reorganizations, especially for large corporations, sometimes require more than 24 months, and a strict deadline could force premature or suboptimal plans, or lead to dismissals of potentially viable cases.
Tradeoffs
This provision balances the need for efficient bankruptcy administration against the inherent complexity and time often required for successful corporate reorganization.
Section 2(2)(C), adding 11 U.S.C. 1112(b)(4)(Q)
New Grounds for Chapter 11 Dismissal: Futility or Bad Faith
This amendment adds 'the filing of a petition for relief or the continuation of a case under this title that is objectively futile or in subjective bad faith' as a new cause for dismissal of a Chapter 11 case. This provides courts with explicit statutory grounds to dismiss cases deemed without a legitimate reorganizational purpose or filed with improper intent.
Section 2(3), adding 11 U.S.C. 1112(g)(1)
Rebuttable Presumption of Bad Faith for Manufactured Venue
This section establishes a rebuttable presumption that a petition has been filed or a case is continuing in subjective bad faith if the court determines that the debtor 'manufactured the venue' for the case. This presumption can only be overcome by clear and convincing evidence, making 'forum shopping' more difficult for debtors.
Section 2(3), adding 11 U.S.C. 1112(h)(1)
Conclusive Presumptions of Subjective Bad Faith
This section creates several *conclusive* presumptions of subjective bad faith, meaning they cannot be rebutted. These include filings whose purpose or effect is to gain a tactical litigation advantage, impose undue delay, or cap liability for certain 'protected claims' when the debtor could pay them. It also applies if the debtor underwent a divisional merger or similar corporate restructuring within 4 years, engaged in certain avoidable asset transfers to insiders/affiliates within 4 years, or lacks a valid reorganizational purpose.
Section 3, adding 11 U.S.C. 105(e)
Prohibition on Overriding Non-Debtor Stays
This amendment explicitly states that a court may not issue any order, process, or judgment that has the purpose or effect of overriding or nullifying the new section 362(b)(27). This prevents bankruptcy courts from using their general equitable powers (under 11 U.S.C. 105(a)) to extend the automatic stay to non-debtor entities in situations where the new 362(b)(27) would otherwise lift it.
Section 4(1)(B), adding 11 U.S.C. 362(b)(27)
Exception to Automatic Stay for Non-Debtors in Corporate Restructurings
This provision creates a new exception to the automatic stay, allowing the commencement or continuation of judicial or administrative actions against *non-debtor entities* or their property. This exception applies if the action relates to a 'protected claim' and the debtor underwent a divisional merger, spinoff, corporate restructuring, or similar transaction affecting its financial condition within the preceding 4 years.
Section 4(2), adding 11 U.S.C. 362(p)
Definition of 'Protected Claim'
This section defines 'protected claim' for the purposes of the new 362(b)(27) exception to the automatic stay. It includes claims against non-debtor entities alleged to be directly or indirectly liable for claims against the debtor, arising from ownership, management, insurance provision, or involvement in corporate structure/financial transactions. It also broadly includes claims against the debtor or non-debtor entity relating to injury, contamination, damage, or loss affecting at least 100 individuals, allegedly caused by a product/substance of the debtor/non-debtor, and arising from acts/omissions of the debtor/affiliate.
Section 6
Retroactive Application and Preservation of Final Judgments
This section states that the Act and its amendments apply to any case under title 11, United States Code, filed or pending on or after the date of enactment. It also clarifies that the Act should not be construed to affect the validity of any final judgment or order confirming a Chapter 11 plan that was entered before the date of enactment.
The detailed definition of 'protected claim' is crucial for understanding the scope of the new automatic stay exception. It includes claims against non-debtor entities arising from various relationships with the debtor (ownership, management, insurance, financial transactions) and broadly covers claims related to injury, contamination, or loss affecting at least 100 individuals, allegedly caused by the debtor's products or actions.
Section 4(2), adding 11 U.S.C. 362(p)
Why it matters:While definitions are often placed at the end of sections or acts, the complexity and broad implications of this specific definition, particularly for mass tort litigation, make it a key element that could be easily overlooked by a casual reader focusing on the main statutory changes.
Case for: Proponents would argue that a precise and comprehensive definition is necessary to clearly delineate the types of claims and non-debtor entities that will no longer receive automatic stay protection, ensuring the bill's intended effect.
Case against: Opponents might argue that the definition is overly broad and complex, potentially sweeping in legitimate business relationships and making it difficult for companies to assess their risk exposure, thereby creating legal uncertainty.
Estimated impact: This definition significantly expands the types of claims and non-debtor entities that can be pursued outside of bankruptcy, particularly in mass tort cases, potentially increasing litigation against related parties.
This section establishes several *conclusive* presumptions of subjective bad faith for Chapter 11 filings. These include cases where the purpose is to gain tactical litigation advantage, impose undue delay, or cap certain 'protected claims' that the debtor could otherwise pay. It also applies if the debtor underwent a divisional merger or similar corporate restructuring within 4 years, or engaged in certain avoidable asset transfers to insiders/affiliates within 4 years, or lacks a valid reorganizational purpose.
Section 2(3), adding 11 U.S.C. 1112(h)(1)
Why it matters:While part of the core dismissal provisions, the specific triggers for these conclusive presumptions are highly detailed and require careful reading to understand their full implications, especially the look-back periods and the connection to 'protected claims'.
Case for: Proponents argue these conclusive presumptions are necessary to unequivocally prevent specific, well-documented abuses of the bankruptcy system, particularly those involving corporate maneuvers to shed liabilities or delay creditors.
Case against: Opponents would argue that conclusive presumptions are overly rigid and can lead to unjust outcomes by removing judicial discretion, potentially penalizing debtors who, despite meeting a presumption's criteria, may have a legitimate reorganizational purpose.
Estimated impact: These presumptions could lead to the dismissal of a significant number of Chapter 11 cases, particularly those involving complex corporate histories or mass tort liabilities, fundamentally altering the landscape for such filings.
The Act and its amendments apply to any case filed or pending on or after the date of enactment, but do not affect the validity of any final judgment or order confirming a Chapter 11 plan entered before enactment.
Section 6
Why it matters:While standard for legislative acts, the retroactive application to 'pending' cases is a critical detail that can dramatically alter the legal landscape for ongoing bankruptcy proceedings, potentially leading to immediate challenges and uncertainty.
Case for: Proponents argue that applying the new rules to pending cases ensures immediate reform and prevents debtors from continuing perceived abuses under the old rules, providing timely relief to creditors and victims.
Case against: Opponents might argue that applying new rules to pending cases disrupts established expectations and strategies, leading to legal challenges, uncertainty, and potential unfairness for parties who structured their affairs under prior law.
Estimated impact: Could lead to significant litigation in currently pending Chapter 11 cases as parties contest the application of the new, stricter standards, potentially delaying resolutions.