Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026

The "Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026" significantly amends Chapter 11 of the Bankruptcy Code, primarily by introducing new grounds for dismissing bankruptcy cases. It mandates that a Chapter 11 petition or its continuation can be dismissed if found to be objectively futile or filed in subjective bad faith, aiming to prevent the misuse of bankruptcy proceedings.

The bill establishes clear criteria for determining subjective bad faith, including a rebuttable presumption if the debtor manufactured the venue for the case. Conclusive presumptions of bad faith arise if the filing's purpose is to gain a tactical litigation advantage, impose undue delay on creditors, or cap liability for certain "protected claims." Bad faith is also presumed if the debtor underwent specific corporate restructurings or engaged in avoidable asset transfers to insiders within four years prior to filing, or if the debtor lacks a valid reorganizational purpose.

A crucial provision creates a new exception to the automatic stay, allowing legal actions to proceed against non-debtor entities for "protected claims" under specific circumstances. This exception applies if the debtor was involved in a divisional merger, spinoff, or similar corporate restructuring within four years before filing. "Protected claims" are broadly defined to include mass tort claims relating to injury or contamination affecting at least 100 individuals, particularly when linked to a non-debtor entity's involvement with the debtor or its products.

Additionally, the bill prohibits courts from using general equitable powers to override this new automatic stay exception and sets a stricter 24-month deadline for debtors to file a Chapter 11 plan. These changes apply to all bankruptcy cases filed or pending on or after the Act's enactment, but do not invalidate previously confirmed plans.