S. 4346 — Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026

This section revises the standards for converting a chapter 11 reorganization case to chapter 7 liquidation or dismissing it under 11 U.S.C. §1112(b) by (1) replacing the requirement that a plan be filed "within a reasonable period of time" with a requirement that it be filed "not later than 24 months after the date of the filing of the petition"; and (2) adding to the list of exceptions to mandatory conversion or dismissal a new ground in §1112(b)(4)(Q) for dismissal if the petition filing or case continuation is objectively futile or in subjective bad faith. The section further adds new subsections §1112(g)–(i) to define subjective bad faith for purposes of §1112(b)(4)(Q), including (g) a rebuttable presumption (by clear and convincing evidence) if the debtor manufactured the venue; (h) a conclusive presumption if the filing or continuation is to gain a tactical litigation advantage, impose undue delay on creditors, or cap liability to creditors holding protected claims (i.e., those under §362(p)(1)) despite sufficient assets to pay them in full; if the debtor was involved in a divisional merger or similar transaction affecting its financial condition during the prior 4-year period; if it made substantial avoidable transfers to insiders or affiliates during the prior 4-year period; or if it lacks a valid reorganizational purpose (weighing any appointed creditors' committee support for dismissal); and (i) placing the burden of proof on the debtor.

This section prohibits bankruptcy courts from issuing any order, process, or judgment—including under section 105(a) of the Bankruptcy Code, title 28, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law—that has the purpose or effect of overriding or nullifying the automatic stay exception provided in section 362(b)(27) of the Bankruptcy Code. (Section 362(b)(27) permits master netting agreement and other financial participants to exercise setoff, termination, liquidation, acceleration, and netting rights with respect to certain financial contracts notwithstanding the automatic stay.)

This section excepts from the automatic stay actions against non-debtor entities—including to obtain or recover such entities' property—on account of a "protected claim" against the non-debtor, the debtor, or the estate if, during the four-year period preceding the bankruptcy petition filing date, the debtor was the subject of, or formed or organized in connection with, a divisional merger, spinoff, corporate restructuring, or other transaction changing the corporate structure of and affecting the financial condition of the debtor or an affiliate. (As background, the automatic stay generally halts, upon a bankruptcy filing, judicial, administrative, or other actions against the debtor or its property to collect debts; this provision adds a new exception in 11 U.S.C. §362(b)(27).) It defines "protected claim" as (1) a claim against a non-debtor entity (or its property) allegedly liable for a claim against the debtor, arising from the non-debtor's ownership of a financial interest in, management involvement with, provision of insurance to, or participation in a corporate restructuring, loan, or other financial transaction affecting the debtor or a related party (including providing financing or advice or acquiring/selling a financial interest); or (2) a claim against the debtor or a non-debtor (or their property) relating to injury, contamination, damage, or loss—including for reimbursement, indemnity, contribution, or subrogation—affecting at least 100 individuals on or after the petition date, allegedly caused by exposure to a product, material, or substance designed, marketed, manufactured, sold, modified, extracted, serviced, or used by the debtor, non-debtor, predecessor, or affiliate. "Related party" has the meaning given in bankruptcy asbestos trust provisions (11 U.S.C. §524(g)(4)(A)(iii)). (Thus, the exception applies only to cases involving recent corporate restructurings and either financial/management ties or mass tort claims.)

This section makes technical amendments to the Bankruptcy Code by updating cross-references from 11 U.S.C. § 362(b)(27) to § 362(b)(28)—an exception to the automatic stay—in (1) § 553(a)(2)(B)(ii), (a)(3)(C), and (b)(1), relating to setoff rights; and (2) §§ 1519(f) and 1521(f), relating to relief available in cross-border insolvency cases.

This section provides that the Act and its amendments (1) apply to any case under title 11, United States Code (i.e., the Bankruptcy Code), filed or pending on or after the date of enactment; and (2) shall not be construed to affect the validity of any final judgment or order confirming a chapter 11 plan entered before the date of enactment.