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The U.S. House of Representatives Judiciary Committee recently passed legislation that would limit relief available in bankruptcy proceedings.  The legislation, known as the Nondebtor Release Prohibition Act of 2021 ("NRPA"), focuses on protections sometimes extended to "nondebtors" or entities that did not seek bankruptcy protection but are affiliated with a bankrupt company or "debtor."1 Bankruptcy Courts have, on occasion, extended protections to nondebtors, either in the form of a release of claims or stay of [...]

Despite the absence of any explicit directive in the Bankruptcy Code, it is well understood that a debtor must file a chapter 11 petition in good faith. The bankruptcy court can dismiss a bad faith filing "for cause," which has commonly been found to exist in cases where the debtor seeks chapter 11 protection as a tactic to gain an advantage in pending litigation. A ruling recently handed down by the U.S. Bankruptcy Court for [...]

For creditors dealing with debtors in the shadow of bankruptcy, a common scenario repeats itself.  The creditor repossesses collateral, attaches an account, or sets off a bank account, and then the debtor files a bankruptcy petition. What must the bank or attaching creditor do? Filing a bankruptcy petition automatically halts efforts to collect prepetition debts from the debtor outside of bankruptcy. The "automatic stay" provides fundamental protection to debtors, mandating a full-stop on collection activity. [...]