Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026
- Bill Number
- S. 4346
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 2
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2026-04-20: Read twice and referred to the Committee on the Judiciary.
- Last Updated
- 2026-05-01T19:11:13Z
AI-Generated Summary
Purpose
The "Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026" aims to prevent abusive Chapter 11 bankruptcy filings (a type of business reorganization process) that are pointless (objectively futile) or filed dishonestly (subjective bad faith). It targets tactics like corporate restructurings designed to shield companies or affiliates from paying certain claims, especially mass harm claims (e.g., from defective products affecting many people).
Key Provisions
- Dismissal or Conversion of Cases: Adds to Section 1112(b) of the Bankruptcy Code grounds for courts to dismiss or convert Chapter 11 cases if the filing is objectively futile (no realistic chance of success) or in subjective bad faith.
- Limits the time to confirm a reorganization plan to 24 months from filing (replaces vague "reasonable period").
- Presumptions of Bad Faith (new subsections 1112(g)-(i)):
- Rebuttable presumption: Filing is in bad faith if the debtor "manufactured the venue" (e.g., shifted the case to a favorable court); debtor must prove otherwise with clear and convincing evidence.
- Conclusive presumption: Automatic bad faith if filing aims to gain litigation edges, delay creditors, cap liabilities on payable claims; or if debtor had recent divisional mergers, avoidable asset transfers to insiders, or lacks a valid reorganization goal. Courts weigh creditors' committee views.
- Limits on Court Powers (amends Section 105(e)): Courts cannot issue orders overriding exceptions to the automatic stay (a bankruptcy pause on creditor actions) in Section 362(b)(27).
- Automatic Stay Exceptions (amends Section 362(b)(27) and adds (p)):
- No stay for "protected claims" against non-debtor entities (e.g., affiliates, insurers) if the debtor had a corporate restructuring (like a spinoff or merger) in the prior 4 years.
- Protected claims include mass claims (affecting 100+ people) for injuries from products/substances, tied to debtor's affiliates, management, insurance, or restructurings.
- Application: Applies to new or pending cases after enactment; does not undo prior confirmed plans.
- Technical Fixes: Updates cross-references in Sections 553, 1519, and 1521.
Significant Changes to Existing Law
- Introduces specific, strict timelines (24 months) and presumptions for bad faith dismissals, easing the process compared to prior "for cause" standards.
- Creates new automatic stay exceptions for non-debtor "protected claims," blocking third-party protections often used in mass tort bankruptcies.
- Shifts burden of proof to debtors to show good faith.
Potential Impacts
- Government Agencies/Bankruptcy Courts: More dismissals may reduce caseloads but increase early hearings on bad faith/venue.
- Citizens/Creditors: Strengthens protections for mass tort victims (e.g., product liability claimants) by allowing claims against non-debtors/insurers to proceed despite bankruptcy.
- Debtors/Corporations: Deters restructurings to evade liabilities; harder to use bankruptcy for tactical delays or liability caps.
- International Relations: Minimal direct impact, though could affect cross-border cases via updated stay references.
Main Stakeholders
- Creditors, especially holders of mass tort/"protected claims" (e.g., injured individuals, seeking full recovery).
- Debtors (corporations filing Chapter 11) and their affiliates/insiders.
- Creditors' Committees (gain influence in bad faith determinations).
- Bankruptcy Courts/Judges (new decision-making standards).
- Non-debtor entities (e.g., parent companies, insurers) losing stay protections.
Notable Legal, Constitutional, or Political Implications
- Legal: Tightens bad faith standards and limits "Texas two-step" restructurings (divisional mergers to isolate liabilities); promotes faster resolutions but may lead to more appeals on presumptions.
- Constitutional: No clear challenges; aligns with due process by allowing rebuttals and burdens on debtors.
- Political: Bipartisan (sponsors: Whitehouse, Hawley, Durbin); emphasizes corporate accountability without broad bankruptcy overhauls.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Sen. Whitehouse, Sheldon [D-RI]
Cosponsors (2)
Sen. Hawley, Josh [R-MO], Sen. Durbin, Richard J. [D-IL]
Recent Actions
- 2026-04-20: Read twice and referred to the Committee on the Judiciary.
- 2026-04-20: Introduced in Senate
Bill Versions
- Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026 — issued 2026-04-20 — PDF (9 pages)