Banning nonconsensual third-party debt releases in bankruptcy cases.
This Act aims to protect the rights of citizens and companies who hold claims against entities not directly filing for bankruptcy (nondebtors). It prohibits bankruptcy courts from discharging or modifying the liability of these third parties without the claimant's explicit consent. This ensures that if a company files for bankruptcy, creditors retain their right to pursue claims against other potentially liable entities, increasing their chances of financial recovery.
Key points
Creditor Protection: Bankruptcy courts cannot automatically cancel or modify the liabilities of nondebtor entities (e.g., related companies, directors) to creditors, unless the creditor provides explicit written consent.
Active Consent Required: Consent for a third-party release must be express and in writing; it cannot be implied by silence, failure to object to a reorganization plan, or merely accepting the plan.
Time Limit on Stays: Temporary court orders preventing creditors from pursuing claims against nondebtors in Chapter 11 cases are limited to 90 days, unless the affected creditor expressly agrees to an extension.
Preventing 'Divisional Mergers': The court must dismiss a bankruptcy case if the debtor was formed within the preceding 10 years through a restructuring (like a divisional merger) intended to separate material assets from liabilities and assign those liabilities to the debtor.
Expired
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