Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026
- Sponsor
- Sen. Whitehouse, Sheldon [D-RI]
- Committees
- Judiciary Committee (primary)
- Last action
- Apr 20, 2026
Bottom line
The bill aims to curb perceived abuses of Chapter 11 bankruptcy filings by corporations, particularly those using complex restructurings to shield affiliates from mass tort liabilities, by making dismissals easier and limiting protections for non-debtors.
What it actually does
This bill amends Chapter 11 of the Bankruptcy Code to establish new grounds for dismissing a case if the petition is objectively futile or filed in subjective bad faith, including specific presumptions for such findings. It also significantly limits the automatic stay for non-debtor entities in cases involving certain corporate restructurings and mass tort liabilities, preventing courts from issuing orders that would override these limitations.
Proponents argue
Supporters argue this legislation is crucial for ensuring corporate accountability and protecting victims of mass torts. They contend it prevents companies from exploiting bankruptcy laws to evade legitimate liabilities and shields assets through strategic corporate maneuvers, thereby restoring fairness and integrity to the bankruptcy system.
Opponents contend
Opponents might argue that the bill could unduly restrict legitimate corporate restructuring efforts, create significant uncertainty for businesses, and potentially make it harder for companies facing substantial liabilities to reorganize effectively, which could negatively impact jobs and economic stability.
The bill is concise, allowing for a quick yet thorough understanding of its core changes to bankruptcy law.
Section 2, amending 11 U.S.C. 1112(b)(4)
New Grounds for Chapter 11 Case Dismissal
This provision adds the filing or continuation of a Chapter 11 case that is 'objectively futile' or 'in subjective bad faith' as new statutory grounds for dismissal. It also shortens the 'reasonable period of time' for a debtor to file a plan to a specific limit of 24 months after the petition date.
Supporters argue
Supporters argue this prevents abuse of the bankruptcy system by debtors who file cases with no real prospect of reorganization or solely to gain tactical advantages, ensuring the system is used for its intended purpose of legitimate restructuring.
Critics contend
Critics might argue that these new grounds could be overly broad or subject to subjective interpretation, potentially leading to premature dismissals of cases that could otherwise be successfully reorganized, thereby hindering economic recovery.
Tradeoffs
This provision balances the need to prevent bankruptcy abuse against the flexibility required for legitimate corporate reorganizations, potentially limiting the latter to achieve the former.
Section 2, adding 11 U.S.C. 1112(g) and (h)
Establishes Presumptions for Bad Faith Filings
This section creates a rebuttable presumption of subjective bad faith if a debtor 'manufactured the venue' for the case. More significantly, it establishes *conclusive* presumptions of subjective bad faith if the filing's purpose is to gain tactical litigation advantage, impose undue delay, cap liability for 'protected claims' when the debtor can pay them, or if the debtor engaged in a divisional merger or substantial avoidable asset transfers within 4 years, or lacks a valid reorganizational purpose.
Section 3, adding 11 U.S.C. 105(e)
Prohibits Overriding Automatic Stay for Non-Debtors in Specific Cases
This provision explicitly prevents bankruptcy courts from issuing any order, process, or judgment that would have the purpose or effect of overriding or nullifying the new exception to the automatic stay (created in Section 4) for actions against non-debtor entities related to 'protected claims' following certain corporate restructurings.
Section 4, amending 11 U.S.C. 362(b) and adding 362(p)
New Exception to Automatic Stay for Non-Debtors in Mass Tort Contexts
This section creates a new exception to the automatic stay, allowing the commencement or continuation of actions against non-debtor entities for 'protected claims' if the debtor underwent a divisional merger, spinoff, or similar restructuring within the preceding 4 years. It broadly defines 'protected claim' to include claims related to injury, contamination, or loss affecting at least 100 individuals, allegedly caused by the debtor's product/substance, and where the non-debtor is alleged to be directly or indirectly liable due to ownership, management, insurance, or involvement in corporate transactions.
This subsection provides an extensive and detailed definition of 'protected claim,' which is central to the new automatic stay exception. It includes claims against non-debtor entities alleged to be liable for claims against the debtor, arising from the non-debtor's ownership, management, insurance provision, or involvement in corporate transactions. It further specifies claims related to injury, contamination, or loss affecting at least 100 individuals, allegedly caused by the debtor's product or substance.
Section 4, adding 11 U.S.C. 362(p)(1)
Why it matters:While standard legislative practice for defining complex terms, the breadth and specific criteria within this definition are crucial for understanding the full scope and impact of the automatic stay exception, which might not be immediately apparent to a casual reader.
Case for: Supporters argue the detailed definition is necessary to precisely target the types of claims and corporate structures that have been used to shield assets and evade liability in mass tort cases, ensuring the new stay exception is effective and prevents further circumvention.
Case against: Critics might argue the definition is overly complex and broad, potentially capturing a wider range of claims and non-debtor entities than intended, leading to unintended consequences, increased litigation, and uncertainty for corporate planning.
Estimated impact: Significantly expands the types of claims and parties that cannot be shielded by the automatic stay in certain bankruptcy cases, particularly those involving mass torts and complex corporate structures.
This subsection establishes several *conclusive* presumptions of subjective bad faith for the purpose of dismissing a Chapter 11 case. These include situations where a filing's purpose is to gain a tactical litigation advantage, impose undue delay, cap liability for protected claims when the debtor can pay them, or if the debtor was involved in a divisional merger or substantial avoidable asset transfers to insiders/affiliates within the preceding 4 years, or lacks a valid reorganizational purpose.
Section 2, adding 11 U.S.C. 1112(h)(1)
Why it matters:The use of 'conclusively presume' is precise legal drafting, but its full impact on judicial discretion and a debtor's ability to present a defense might not be immediately obvious to a non-legal reader, making it a powerful, yet subtly worded, provision.
Case for: Proponents argue that these specific actions are so clearly indicative of bad faith or abuse of the bankruptcy system that no rebuttal should be permitted. They contend this streamlines the dismissal process for egregious cases and provides clear deterrents against such maneuvers.
Case against: Opponents would argue that conclusive presumptions are too rigid and deny due process, potentially leading to unfair outcomes where a debtor might have a legitimate explanation for actions that fall under these categories, but is statutorily barred from presenting it.
Estimated impact: Dramatically shifts the burden of proof and significantly limits judicial discretion in certain bankruptcy dismissal proceedings, making it much harder for debtors to defend against bad faith allegations if specific criteria are met.