Bill
S 4346
The bill empowers dismissal/conversion of Chapter 11 cases filed in bad faith or as futility, strengthens stay protections for non-debtors, and tightens venue and procedural contro
Purpose
- To amend Chapter 11 bankruptcy law (title 11, United States Code) to provide stronger tools for dismissing Chapter 11 cases that are conducted in objectively futile or in subjective bad faith, and to tighten protections against misuse of bankruptcy process. The bill also enhances protections related to stay rulings and clarifies definitions around protected claims and related parties.
Key Provisions
1) Dismissal for Futility or Bad Faith (Section 2)
- Amends Section 1112(b) to require dismissal or conversion of a Chapter 11 case if the petition is:
- Objectively futile, or
- In subjective bad faith.
- Adds new criteria and a formal framework for determining bad faith or futility, including:
- A new Q category in the standards for dismissal.
- A presumption under subsection (g) that a petition/case continuation is in subjective bad faith if the debtor “manufactured the venue” for the case.
- A rebuttable presumption requires clear and convincing evidence to overcome the subjective-bad-faith presumption.
- An automatic, conclusive presumption of subjective bad faith if the court finds certain indicators (detailed in subsequent subsection), including:
- Use of the filing to gain tactical litigation advantage, cause undue delay to creditors, or cap liability to two or more protected creditors at less than full payment.
- Pre-filing conduct such as divisional mergers, corporate restructurings, or asset transfers affecting financial condition or involving insiders/affiliates within the past four years.
- Debtor’s lack of a valid organizational purpose.
- Burden of proof on the debtor for determinations under these provisions.
2) Stays and Injunctions Limitations (Section 3)
- Adds a limitation to stay-like remedies to prevent use of nonbankruptcy laws or processes to override new Section 1112 standards.
- Courts cannot issue orders or judgments that nullify the new anti-bad-faith/anti-futility provisions (relative to 362(b)(27) as added by the Act).
3) Automatic Stay Provisions (Section 4)
- Expands and clarifies automatic stay protections:
- Creates a new protected claim concept affecting non-debtor entities and property, tied to the four-year pre-petition period and specific divisional restructurings or related corporate transactions.
- Defines “protected claim” to include claims against non-debtors arising from ownership, control/management, insurance, or related financial transactions linked to the debtor or its related parties.
- Expands the stay to prohibit actions against non-debtors to collect on protected claims when those claims are connected to the debtor’s corporate changes in the preceding four years.
- Introduces a broad, new stay trigger focused on non-debtor entities with a linkage to the debtor’s restructuring activities.
4) Technical Amendments (Section 5)
- Adjustments to cross-references in Section 362 and related recognition/recovery sections to align with new stay/claims provisions (replacing references to 27 with 28 where appropriate).
5) Applicability and Construction (Section 6)
- Applies to cases filed or pending on or after enactment.
- Explicitly notes that the act does not affect the validity of final judgments/orders issued before enactment.
Additional Details
- The bill’s title: “Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026.”
- Sponsors: Senators Whitehouse (principal), Hawley, and Durbin; with Hawley and Durbin as co-sponsors.
- Introduction and referral: Introduced April 20, 2026; referred to the Senate Judiciary Committee.
Potential Impact and Implications
Note: This summary reflects the substantive text provided and focuses on the bill’s stated changes to Chapter 11 procedures, stay rules, and definitions, without transposing or interpreting beyond the text.
Compiled from official sources — confirm details with the bill’s official record.
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