The Year in Bankruptcy: 2025
Of all the possible words to describe the economic and financial developments in the United States (and abroad) during 2025, "tumultuous" is probably the most apt.
Global financial highlights included: trade disruptions caused by enduring wars, international trade wars sparked by tariffs, indicators that the AI frenzy may be a bubble about to burst, the crypto market rollercoaster, and stubborn inflation.
In the United States, these developments also included: the longest government shutdown in history; the knock-on impacts of cuts made by the Department of Government Efficiency to U.S. agencies and departments; the highest unemployment rate in four years; the nation's loss of its last triple-A credit rating due to large fiscal deficits and rising interest costs; a record $38 trillion in gross national debt; the weakest dollar in seven years; three cuts to the federal benchmark interest rate; an "affordability" crisis; changing consumer spending preferences plaguing retailers; the persistent malaise of the U.S. health care sector; and auto industry headwinds prompted by ongoing supplier distress, decreased demand for electric vehicles in the absence of U.S. government subsidies, and soaring costs for vehicles and parts produced in whole or in part internationally.
One year ago, we wrote that 2024 would be remembered in the annals of business bankruptcy for: resolution of the long-smoldering controversy regarding the legitimacy of seeking bankruptcy protection as a way to deal with mass-tort liabilities in chapter 11 plans that release company owners and other insiders from liability as a quid pro quo for funding payments to creditors; the ongoing controversy regarding the propriety of the "Texas two-step," a corporate reorganization technique used by several prominent companies in combination with a bankruptcy filing to deal with mass tort liabilities; and the increasing incidence, both within the United States and now in Europe, of "creditor-on-creditor" litigation in bankruptcy related to "position enhancement" or "liability management" exercises ("LMEs").
Some of those issues continued to occupy center stage in 2025.
Mass Torts. After the U.S. Supreme Court's 2024 ruling in the Purdue Pharma bankruptcy case that a chapter 11 plan (in non-asbestos cases), absent full payment or the consent of affected creditors, cannot release non-debtors from liability, bankruptcy and appellate courts have been scrambling to determine what constitutes creditor "consent." Various "opt-out" mechanisms designed to establish consent have been proposed in post-Purdue Pharma chapter 11 cases, with varying degrees of success. Many courts in 2025 weighed in on the propriety of those mechanisms, which generally involve notifying creditors that if they do not opt out, they will be bound by the plan's third-party release provision.
The ability of companies to utilize chapter 11 as a vehicle for dealing with mass tort liabilities was highlighted in the Bestwall chapter 11 case, where the Fourth Circuit Court of Appeals ruled that Georgia-Pacific asbestos unit Bestwall could remain in chapter 11, reasoning that a debtor's financial status has no bearing on whether a bankruptcy court has jurisdiction over its case. According to the Fourth Circuit, the only relevant question was whether the case was filed under U.S. law, and "[t]he Bankruptcy Code is a law of the United States."
In the Kaiser Gypsum chapter 11 cases, the Fourth Circuit Court of Appeals upheld an order confirming a chapter 11 plan for debtors facing a raft of asbestos personal injury claims, agreeing with lower courts that the plan was proposed in good faith and satisfied the Bankruptcy Code's requirements for establishing a trust to pay asbestos claims. The Fourth Circuit affirmed the lower court's ruling following a remand by the U.S. Supreme Court.
Jones Day represented Kaiser Gypsum and its affiliate Hanson Permanente Cement in the chapter 11 cases.
LMEs. For more than a decade, borrowers and their sponsors have used LMEs to create runway, preserve liquidity, and rationalize capital structures outside of bankruptcy. These transactions include "uptiers," "double-dips," "drop-downs," non-pro rata exchanges, debt-for-debt tenders, and rights offerings designed to reward cooperation and speed. They are designed to address the high cost of unanimity in widely held capital structures, as well as the flexibility afforded by modern credit agreements to amend with majority consent as long as "sacred rights" are unchanged except upon each affected lender's consent. The risk in these transactions is that the LME does not solve the fundamental problems plaguing the borrower, and a subsequent in-court proceeding is required or lender-on-lender conflict ensues (sometimes as part of an in-court proceeding).
Such conflicts erupted prominently near the end of 2024 after the Fifth Circuit Court of Appeals issued its ruling in the Serta Simmons chapter 11 case invalidating an LME transaction, and (on the same day) a New York state court handed down its decision rejecting a challenge to an LME transaction involving Mitel. In Serta Simmons, the Fifth Circuit concluded that a chapter 11 plan provision indemnifying certain lenders in connection with an uptier LME transaction that excluded certain lenders violated the terms of a credit agreement because, among other things, the uptier transaction was not a permissible "open market purchase" under the agreement. In Mitel, the New York state court reversed a lower court ruling denying motions to dismiss excluded lenders' contractual challenges to Mitel's non-pro-rata uptier exchange. The court found that the uptier transaction did not breach the underlying credit agreement, principally because the credit agreement included an exception allowing the company to "purchase" loans "at any time," without the "open market" qualifier.
Lender-on-lender conflict regarding LMEs and non-pro rata distribution structures continued in 2025, with significant rulings in the Incora/Wesco and ConvergeOne chapter 11 cases. In Incora/Wesco, a Texas federal district court reversed a bankruptcy court ruling invalidating in part a secured uptier exchange, finding that the transaction was "perfectly proper and appropriate" under the indenture, and the "sophisticated" minority noteholders should have pushed for a "sacred right" in the indenture preventing the transaction. The minority noteholders appealed the ruling to the Fifth Circuit. In ConvergeOne, a different Texas federal district court reversed a chapter 11 plan confirmation order, concluding that the plan did not provide "equal treatment" to second-lien creditors that were not permitted to participate with similarly classified first-lien creditors in "backstopping" an equity offering because, among other things, the debtor failed to perform a market test for the value of the consideration given in connection with the backstop.
In November 2025, Altice USA Inc. filed an antitrust lawsuit against some of its largest creditors in anticipation of potential discussions to restructure its $26 billion in debt. Optimum Communications Inc.— Altice's name after a rebranding—filed litigation in a New York federal district court alleging that the lender group worked together to freeze the company out of the U.S. credit market. According to Optimum, the cooperation agreement binds "nearly every creditor holding Optimum's debt" and bars them from dealing with the company unless two-thirds of the firms approve. This and similar strategies are becoming increasingly common in restructuring situations in both the United States and Europe.
Eagerly anticipated in early 2026 was a ruling from a New York state court in a lawsuit commenced in 2025 by excluded lenders challenging a dropdown and double-dip LME involving STG Distribution LLC, a subsidiary of integrated port-to-door logistics service provider STG Logistics, Inc., that the plaintiffs alleged violates sacred rights provisions in their credit agreement. The plaintiffs are also seeking to avoid the transactions under the New York Uniform Voidable Transactions Act on the ground that they were intended to hinder the recovery of the excluded lenders in any future bankruptcy case. The defendants argue that the LME transactions are permitted under the credit agreement, and that, even if they are not, the excluded lenders lack standing to pursue their complaint due to the credit agreement's "no action" clause. See Axos Financial, Inc. v. Reception Purchaser, LLC, No. 0650108/2025 (N.Y. Sup.). However, any decision from the state court was put on hold after STG Logistics, STG Distribution, and their affiliates filed for chapter 11 protection on January 12, 2026, in the District of New Jersey. See In re STG Logistics, Inc., No. 26-10258 (Bankr. D.N.J.).
Companies involved in LMEs are increasingly filing for chapter 11 protection, typically with pre-packaged chapter 11 plans designed to provide a bankruptcy court's sanction for LMEs that are vigorously opposed by excluded or minority lenders because the LMEs are allegedly contractually or legally improper. Recent caselaw, however, indicates that despite bankruptcy court confirmation of such chapter 11 plans, sophisticated lenders benefiting from LMEs have largely been unsuccessful in avoiding appellate court review of plan confirmation orders under the doctrine of "equitable mootness," a judge-fashioned doctrine that has been deployed to preclude appellate review of confirmation orders if a plan has been "substantially consummated," such that reversal or modification of the confirmation order would be impossible or would scuttle the reorganization. Appellate courts may be unwilling to preclude appellate review of confirmation orders using the doctrine when they perceive that participating lenders, to whom adverse appellate consequences were foreseeable, are attempting to rely on it to preserve what the courts perceive as "ill-gotten gains."
A more detailed discussion of LME transactions is available here.
Some of these and other significant court decisions handed down in 2025 are discussed in more detail below in the section titled "Notable 2025 Business Bankruptcy Rulings."
Cross-Border Developments. Like 2024, 2025 saw a significant number of cross-border bankruptcy cases filed under chapter 15 of the Bankruptcy Code. Enacted more than 20 years ago to provide a framework for "recognition" of foreign bankruptcy cases in the United States and cooperation between U.S. and foreign bankruptcy courts under principles of international comity, chapter 15 has become a workhorse for dealing with cross-border bankruptcy and restructuring issues. It may also be the last refuge for non-consensual third-party releases to the extent that such releases are approved by a foreign bankruptcy court and enforced in the United States after chapter 15 recognition of a foreign bankruptcy case. The ability to obtain such third-party releases, coupled with the relative lower costs and ease of jurisdictional access to certain non-U.S. restructuring regimes, likely means that chapter 15 case filings will increase overall in the coming years.
Business Bankruptcy Filings in 2025
According to data provided by Epiq AACER, a leading provider of U.S. bankruptcy filing data, overall commercial bankruptcy filings increased five percent in calendar year 2025 to 31,810 from the 30,201 registered the previous year. Commercial chapter 11 filings increased one percent in 2025 to 7,940 from 7,893 filings in calendar year 2024. Small business subchapter V elections within chapter 11 rose 11 percent in calendar year 2025 to 2,446 from the 2,202 recorded in 2024. The lack of increase in commercial chapter 11 filings is likely due to LMEs displacing chapter 11 cases, whether pre-packaged or freefall.
According to data produced by S&P Capital IQ, a global provider of comprehensive financial data, analytics, and market intelligence, there were 31 bankruptcy filings in 2025 by companies with assets or liabilities exceeding $1 billion, compared to 42 in 2024. There were 129 bankruptcy filings in 2025 by companies with assets or debts of at least $100 million, compared to 144 in 2024.
Bloomberg Law data indicate that chapter 15 petitions were filed in 2025 on behalf of 186 foreign debtors, compared to 343 chapter 15 filings in 2024. There were only three chapter 9 filings by municipalities in 2025, compared to two in 2024.
The year 2025 saw the final chapter(s) of some prominent chapter 11 cases.
In November 2025, a New York bankruptcy court confirmed the chapter 11 plan of Purdue Pharma more than five years after the pharmaceutical company founded by the Sackler family filed for bankruptcy protection to address tens of thousands of claims related to its manufacturing and sale of opiate products. The plan contemplates an estimated $7.4 billion in payments ($6.5 billion of which is being paid by the Sacklers) to address nationwide injury caused by the mass marketing and production of addictive painkillers.
Five years after the Boy Scouts of America filed for bankruptcy protection in 2020 to deal with thousands of sexual abuse claims, the company reached a significant milestone in May 2025 when the U.S. Court of Appeals for the Third Circuit rejected the most significant challenges to the organization's chapter 11 plan, which established a $2.5 billion trust to pay the claims of victims in the largest child sexual abuse settlement in U.S. history. In January 2026, the U.S. Supreme declined a petition seeking review of the Third Circuit's ruling filed by certain abuse claimants and insurers.
In March 2025, a Texas bankruptcy court dismissed the third attempt of a Johnson & Johnson Texas two-step subsidiary to use chapter 11 as a vehicle to address personal injury claims arising from the manufacturing of products containing talc. The last dismissal scuttled a proposed $9 billion plan that had been accepted by a substantial majority of the claimants, sending both the companies and claimants back to the tort litigation system to resolve their disputes.
Notable 2025 Business Bankruptcy Rulings
Bankruptcy Asset Sales. Section 363(f)(5) of the Bankruptcy Code allows a bankruptcy trustee to sell estate property free and clear of any competing interest in the property (such as a lien or other security interest) if the interest holder "could be compelled, in a legal or equitable proceeding, to accept" a money satisfaction in exchange for its interest. However, courts disagree regarding what circumstances trigger this section. In In re Urban Commons 2 West LLC, 668 B.R. 42 (Bankr. S.D.N.Y. 2025), the U.S. Bankruptcy Court for the Southern District of New York weighed in on this question. It rejected the narrow view adopted a decade earlier in the same district in Dishi & Sons v. Bay Condos LLC, 510 B.R. 696 (S.D.N.Y. 2014), but cabined the potentially broader view espoused by some courts (and of concern to the Dishi court) by adopting what it termed a "realistic possibility" standard.
Bankruptcy Avoidance Claims. In In re Sanchez Energy Corp., 139 F.4th 411 (5th Cir. 2025), cert. denied, No. 25-208, 2025 WL 3260281 (U.S. Nov. 24, 2025), the U.S. Court of Appeals for the Fifth Circuit awarded a unanimous judgment to an ad hoc group of senior secured noteholders ("SSNs") and debtor-in-possession financing lenders that provided the ad hoc group with shares of reorganized chapter 11 debtor Sanchez Energy Corp. ("Sanchez") worth approximately $700 million. In so doing, the court overruled a bankruptcy court order awarding 70% of the shares of the reorganized debtor to an unsecured creditor based upon a $200 million hypothetical valuation of preference recovery causes of action under section 550(a) of the Bankruptcy Code. According to the Fifth Circuit, the ad hoc group should have been entitled to 100% of the reorganized company's stock based upon super-priority liens that covered all of Sanchez's assets. The court also found that the section 550(a) claims against the SSNs were valueless because the SSNs had released their prepetition liens to facilitate Sanchez's reorganization. Applying the "single satisfaction rule," the Fifth Circuit held that "[c]ourts cannot award value under Section 550(a) when the estate has recovered its transferred property in kind." Because the SSNs released their prepetition liens, the court reasoned, a section 550(a) claim could not net a monetary return.
Jones Day represented the ad hoc group in the litigation.
Whether various provisions of the Bankruptcy Code may be applied extraterritorially to non-U.S. parties or asset transfers has long been debated in cross-border bankruptcy cases under chapter 15 of the Bankruptcy Code. The U.S. Court of Appeals for the Second Circuit recently addressed this question in a groundbreaking ruling. In In re Fairfield Sentry Ltd., 147 F.4th 136 (2d Cir. 2025), the court of appeals reversed a lower court judgment in a chapter 15 case denying dismissal of common law constructive trust claims asserted by the liquidators of a British Virgin Islands ("BVI") company against various non-U.S. recipients of more than $6 billion in redemption payments made as part of the Madoff Ponzi scheme. According to the Second Circuit: (i) the constructive trust claims arising under BVI law were barred by the Bankruptcy Code's safe harbor (section 546(e)) insulating certain securities contract payments from avoidance in the absence of actual fraud; and (ii) by expressly providing in the Bankruptcy Code that section 546(e) applies in chapter 15 cases, U.S. lawmakers intended that section 546(e) apply extraterritorially, thereby overcoming the presumption against extraterritoriality of U.S. laws.
Bankruptcy Court Authority. After the U.S. Supreme Court in Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, 589 U.S. 57 (2020) ("RCA") circumscribed the use of nunc pro tunc ("now for then") orders that make relief ordered by a court apply retroactively to an earlier point in time, the continued use of such orders in bankruptcy cases became an open question. Lower courts have largely distinguished RCA, particularly in cases involving retroactive approval of professional retention application or nunc pro tunc modification of the automatic stay where such relief does not result in the imposition of jurisdiction retroactively in cases where it did not exist previously—the gravamen of the Supreme Court's ruling in RCA.
The U.S. Court of Appeals for the Eleventh Circuit weighed in on this issue as a matter of first impression in In re Patel, 142 F.4th 1313 (11th Cir. 2025). The court of appeals affirmed rulings annulling the automatic stay to validate a post-bankruptcy state court order confirming an arbitration award against the debtor, even though the order was technically void when entered due to the automatic stay. According to the Eleventh Circuit, annulling the automatic stay, which is specifically authorized by the Bankruptcy Code, did not run afoul of RCA, where a federal district court ruled that an order purporting retroactively to confer jurisdiction on a Puerto Rico trial court order was improper because the trial court never had jurisdiction to enter the order when it was issued since the litigation had been removed to the district court.
Bankruptcy Court Jurisdiction. In Official Comm. of Asbestos Claimants of Bestwall LLC v. Bestwall LLC, 148 F.4th 233 (4th Circ. 2025), reh'g denied, No. 24-1493, 2025 WL 3034121 (4th Cir. Oct. 30, 2025), the U.S. Court of Appeals for the Fourth Circuit ruled that Georgia-Pacific asbestos unit Bestwall LLC could remain in chapter 11, reasoning that a debtor's financial status has no bearing on whether a bankruptcy court has jurisdiction over its case. The official committee of asbestos claimants had sought to dismiss the case on jurisdictional grounds, but in a 2–1 decision, the Fourth Circuit held that the only relevant question was whether the case was filed under U.S. law. According to the majority: "The Bankruptcy Code is a law of the United States. So, petitions for relief under the Bankruptcy Code—even those filed by solvent debtors—arise under the laws of the United States." A subsequent petition for rehearing en banc filed by the committee was denied by the full court.
Jones Day represents Bestwall in the chapter 11 case.
Chapter 11 Plans. In In re Serta Simmons Bedding, LLC, 125 F.4th 555 (5th Cir. 2024), as amended, No. 23-20281 (5th Cir. Jan. 21, 2025), revised and superseded, No. 23-20181 (5th Cir. Feb. 14, 2025), reh'g denied, No. 23-20181 (5th Cir. Feb. 18, 2025), cert. denied, No. 24-1322, 2025 WL 3132012 (U.S. Nov. 10, 2025), the U.S. Court of Appeals for the Fifth Circuit reversed and vacated in part a bankruptcy court order confirming the chapter 11 plan of mattress manufacturer Serta Simmons Bedding, LLC ("Serta") to the extent that the plan included a provision indemnifying certain lenders in connection with a 2020 uptier LME. As part of the LME, Serta issued new debt secured by a priming lien on its assets and purchased its existing debt from participating lenders at a discount with a portion of the proceeds. Excluded lenders argued that this violated the terms of Serta's 2016 credit agreement. In so ruling, the Fifth Circuit concluded that: (i) the uptier transaction was not a permissible "open market purchase" under the credit agreement; (ii) the doctrine of "equitable mootness" did not bar review of the plan confirmation order even though the plan had been substantially consummated; (iii) the indemnity relating to the uptier transaction in Serta's chapter 11 plan must be removed because, among other things, the indemnity violated the "equal treatment" requirement for plan confirmation in section 1123(a)(4) of the Bankruptcy Code, which provides that a chapter 11 plan should "provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest."
The U.S. District Court for the Southern District of Texas also examined the equal treatment requirement in Ad Hoc Group of Excluded Lenders v. ConvergeOne Holdings Inc., No. 24-02001 (S.D. Tex. Sept. 25, 2025), appeal filed, No. 24-02001 (S.D. Tex. Oct. 22, 2025), and appeal filed, No. 24-02001 (S.D. Tex. Oct. 24, 2025). The district court reversed the order confirming a software developer's chapter 11 plan, concluding that the plan did not provide equal treatment to second-lien creditors that were not permitted to participate with similarly classified first-lien creditors in "backstopping" an equity offering, thereby giving the first-lien creditors a 30% greater recovery. The court found that the plan violated section 1123(a)(4), because, among other things, the debtor failed to perform a market test for the value of the consideration given in connection with the backstop.
Provisions in chapter 11 plans releasing non-debtors from liability for pre-bankruptcy conduct in exchange for funding for plan distributions or post-confirmation operations have long-been used as a means to facilitate confirmation of plans, even after the U.S. Supreme Court ruled in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024) ("Purdue Pharma"), that the Bankruptcy Code does not permit non-consensual, third-party releases under non-asbestos chapter 11 plans that do not pay creditors in full. In the wake of Purdue Pharma, which did not bar consensual chapter 11 plan release and injunction provisions, courts have scrambled to determine whether various opt-out or opt-in mechanisms are permissible to establish consent.
In In re Gol Linhas Aéreas Inteligentes S.A., No. 25-4610, 2025 WL 3456675 (S.D.N.Y. Dec. 1, 2025), notice of appeal filed, No. 25-04610 (S.D.N.Y. Jan. 7, 2026), the U.S. District Court for the Southern District of New York ruled that a provision in the confirmed chapter 11 plan of Brazilian airline GOL Linhas Aéreas Inteligentes S.A. must be modified to remove third-party releases and corresponding injunctions. The opt-out mechanism in the plan provided that "releasing parties" included, among others: (i) all creditors that voted to accept the plan and did not affirmatively opt out of granting the releases by checking the box on the applicable ballot; (ii) all unimpaired creditors or interest holders that did not affirmatively opt out of granting the releases by checking the box on the applicable notice; (iii) all creditor classes entitled to vote on the plan, but voted to reject it or did not vote and did not affirmatively opt out of granting the releases by checking the box on the applicable ballot; and (iv) related parties of each of the foregoing entities or persons. According to the district court, the opt-out mechanism was insufficient under either applicable state law (New York law) or federal law to establish a creditor's implied consent to the third-party release in accordance with Purdue Pharma. The court stated that "consent cannot be implied from silence" under federal or state law. In so ruling, the district court rejected the debtors' arguments that either the opt-out mechanisms in class action litigation or the rules regarding default judgments entered due to a litigant's inaction should be employed in the chapter 11 plan context to establish consent.
Just 17 days later, a different bankruptcy judge in the Southern District of New York reached the opposite conclusion in confirming a chapter 11 plan for Brazilian airline Azul S.A. that included an opt-out third-party release provision. See In re Azul S.A., No. 25-11176 (SHL) (Bankr. S.D.N.Y. Dec. 19, 2025). According to the bankruptcy court, contrary to the court's conclusion in Gol Linhas, a creditor's failure to select an opt-out box can evidence its consent to a release under either federal bankruptcy law or New York state law. In Azul, the debtors agreed to limit the release by: (i) limiting its application to creditors that returned a ballot and failed to tick the opt-out box; and (ii) providing that the release did not apply to creditors of a "convenience" claims class, of which only 7% of voting creditors submitted ballots. The court issued a written opinion explaining its reasoning in more detail on January 6, 2026. See In re Azul S.A., No. 25-11176 (SHL), 2026 WL 40912 (Bankr. S.D.N.Y. Jan. 6, 2026).
The Supreme Court's ruling in Purdue was limited to non-debtor releases. This left open the possibility that chapter 11 plan "exculpation" clauses limiting the liability of certain non-debtor entities for actions taken in connection with a bankruptcy case may, or "gatekeeping" provisions requiring court approval before suing designated non-debtors might still be permissible, but subsequent rulings suggest that the path to approval is difficult.
For example, the U.S. Court of Appeals for the Fifth Circuit reexamined the validity of chapter 11 plan exculpation and gatekeeping provisions in Matter of Highland Cap. Mgmt., L.P., 132 F.4th 353 (5th Cir. 2025), stayed pending petition for cert., 2025 WL 1522875 (May 29, 2025), cert. denied and stay vacated, No. No. 24 A 1154, 2025 WL 1621149 (U.S. June 9, 2025). The Fifth Circuit reversed a district court's order confirming a chapter 11 plan, ruling that the court failed to narrow the definition of "protected parties" in an exculpation clause of an investment company's plan, which was initially approved in 2021, despite the Fifth Circuit's 2022 decision directing it to do so. According to the Fifth Circuit panel, although bankruptcy injunctions in the form of exculpation provisions are not identical to plan releases, they cannot be used to shield from liability non-debtors that are not legally entitled to releases. In addition, the Fifth Circuit emphasized that gatekeeping "is patently beyond the power of an Article I court under §105 [of the Bankruptcy Code]" if it protects anyone other than the debtor, independent directors, the creditors' committee, and committee members.
In In re AIO US, Inc., No. 24-11836 (CTG), 2025 WL 2426380 (Bankr. D. Del. Aug. 21, 2025), stay pending appeal denied, 2025 WL 3036740 (Bankr. D. Del. Oct. 30, 2025), the U.S. Bankruptcy Court for the District of Delaware addressed the validity of a gatekeeping provision in a chapter 11 plan. It ruled that the plan's gatekeeping provision, which barred any claim that "could be reasonably understood" to violate an exculpation provision in the plan, and provided that any such claim could be asserted only if the bankruptcy court first found the claim to be "colorable" on the merits, was not authorized by the Bankruptcy Code and had to be removed from the plan.
In In re Boy Scouts of Am., 137 F.4th 126 (3d Cir. 2025), reh'g denied, Nos. 23-1664 et al. (3d Cir. June 13, 2025), cert. denied, No. 25-490 (U.S. Jan. 12, 2026), the U.S. Court of Appeals for the Third Circuit rejected the most significant challenges to the chapter 11 plan for the Boy Scouts of America, which established a trust to pay the claims of sexual abuse victims. The court of appeals ruled, among other things, that: (i) an appeal filed by abuse claimants of the plan confirmation order, which effectuated a global settlement involving the establishment of a trust to satisfy abuse claims and a buyback of insurance policies by insurers under section 363(b) of the Bankruptcy Code to fund the trust in exchange for a non-consensual release of all liabilities, must be dismissed as "statutorily moot" because the abuse claimants were challenging a bankruptcy sale authorized as part of confirmation of a chapter 11 plan and failed to obtain a stay pending appeal; (ii) the insurance policy buyback transaction approved under section 363(b) was not an impermissible sub rosa chapter 11 plan; and (iii) the plan did not need to be modified to adequately preserve the rights of certain non-settling insurers, but had to be changed to ensure that other non-settling insurers' claims were paid in full because, otherwise, the plan violated the prohibition against non-consensual third-party releases in Purdue Pharma.
Cross-Border Bankruptcy Cases. In Purdue Pharma, the U.S. Supreme Court held that that no provision in the Bankruptcy Code other than section 524(g) (providing for the creation of a trust for the payment of asbestos personal injury claims) authorizes a chapter 11 plan to release the claims of non-consenting creditors against non-debtor entities absent full satisfaction of such claims. However, Purdue Pharma dealt only with non-consensual releases in a chapter 11 case, leaving open the possibility that a U.S. bankruptcy court in a chapter 15 case could recognize and enforce non-consensual releases approved by a foreign court as part of a foreign debtor's restructuring plan.
In In re Crédito Real, S.A.B. de C.V., 670 B.R. 150 (Bankr. D. Del. 2025), appeal filed, No. 25-00371 (D. Del. Mar. 26, 2025), the U.S. Bankruptcy Court for the District of Delaware ruled that, although non-consensual third-party releases are not permitted in chapter 11 plans, such releases can be part of a foreign debtor's restructuring plan recognized in a chapter 15 case. According to the court: (i) the plain language of sections 1521(a) and 1507 of the Bankruptcy Code gives a bankruptcy court broad discretion to aid foreign courts in accordance with principles of comity; and (ii) nothing in the plain language of these provisions or their legislative history, or canons of construction indicates that Congress intended to diverge from this policy of comity to prohibit enforcing releases entered by foreign courts.
The U.S. Bankruptcy Court for the Southern District of New York came to the same conclusion in In re Odebrecht Engenharia e Construcao S.A., 669 B.R. 457 (Bankr. S.D.N.Y. 2025), where it recognized and enforced in a chapter 15 case non-consensual third-party releases approved as part of a Brazilian judicial reorganization proceeding.
In In re Mega Newco, Ltd., 2025 WL 601463 (Bankr. S.D.N.Y. Feb, 24, 2025), a different bankruptcy judge in the Southern District of New York granted recognition under chapter 15 of the Bankruptcy Code of a UK "scheme of arrangement" proceeding commenced by a newly formed English subsidiary of a Mexican company for the purpose of restructuring the Mexican company's U.S. law-governed debt. The court also recognized and enforced a UK court's order approving the debtor's scheme, which included releases and injunctions of litigation against non-debtor third parties. However, the court noted that it would have had "serious questions" about recognizing the scheme if there had been evidence that the restructuring "structure" had been opposed, unfair, or thwarted creditor expectations.
A major consideration in determining whether a U.S. bankruptcy court should recognize a foreign bankruptcy proceeding involving a group of affiliated companies under chapter 15 of the Bankruptcy Code as a "foreign main" or foreign nonmain" proceeding is the location of each debtor's center of main interests ("COMI"). In In re InterCement Brasil S.A., 668 B.R. 802 (Bankr. S.D.N.Y. 2025), the U.S. Bankruptcy Court for the Southern District of New York granted a petition seeking chapter 15 recognition of a Brazilian reorganization proceeding involving a group of affiliated debtors, some of which were incorporated in other countries. However, the court concluded that the COMI of the group's Dutch and Spanish financing affiliates, which had commenced insolvency proceedings in the Netherlands and Spain, was in Brazil.
One of the requirements for chapter 15 recognition of a foreign bankruptcy case by a U.S. bankruptcy court is that the foreign debtor must have either its COMI or an "establishment" in the country where the debtor's bankruptcy proceeding is pending. The U.S. Bankruptcy Court for the Southern District of Texas addressed this issue in In re Geden Holdings, Ltd., No. 25-90138, 2025 WL 2484883 (Bankr. S.D. Tex. Aug. 28, 2025), stay pending appeal denied, No. 25-90138, 2026 WL 97993 (Bankr. S.D. Tex. Jan. 13, 2026). The court ruled that, although the debtor may have had its COMI or an establishment in Malta when a liquidation proceeding was commenced for it in a Maltese court in 2017, the absence of any meaningful activity by the debtor's liquidator from that time until the liquidator filed a chapter 15 petition in the United States more than five years later meant that the debtor had neither its COMI nor an establishment in Malta on the chapter 15 petition date. The court accordingly denied the petition for recognition.
Chapter 15 of the Bankruptcy Code expressly contemplates that the status of a recognized foreign bankruptcy proceeding may change, and that a U.S. bankruptcy court presiding over a chapter 15 case has the power and flexibility to modify relief granted to a foreign representative as part of a chapter 15 case to account for such changed circumstances. In In re Oi S.A., No. 23-10193 (LGB), 2025 WL 2806591 (Bankr. S.D.N.Y. Oct. 1, 2025), the U.S. Bankruptcy Court for the Southern District of New York considered whether chapter 15 recognition of a debtor's Brazilian restructuring proceeding should be terminated and the case dismissed due to the debtors' financial deterioration and inability to satisfy its restructuring plan obligations after entry of the recognition order. The court denied the motion, concluding that: (i) recognition of the Brazilian proceeding and a court-approved restructuring plan for the debtors should not be terminated under section 1519(d) of the Bankruptcy Code—according to the court, the sole authority for revocation of chapter 15 recognition—because, among other things, the restructuring proceeding was still pending, the debtors might still need relief authorized under chapter 15, and the debtors' prospects for reorganizing under a hypothetical chapter 11 case were uncertain at best; and (ii) no provision of the Bankruptcy Code authorizes the dismissal of a chapter 15 case.
Eligibility for Bankruptcy Filing/Corporate Governance. In In re Whittaker Clark & Daniels Inc., 152 F.4th 432 (3d Cir. 2025), petition for rehearing filed, No. 24-2221 (3d Cir. Oct. 1, 2025), the U.S. Court of Appeals for the Third Circuit held that lower courts did not err in concluding that a New Jersey-incorporated debtor's board of directors retained the authority to file a chapter 11 case on the debtor's behalf in the District of New Jersey to deal with asbestos-related talc liabilities, even though the debtor had been placed into a receivership under South Carolina law to enforce an unsatisfied judgment. According to the Third Circuit, New Jersey law governed the board's authority to petition for bankruptcy relief, and the South Carolina receivership order, even if it were valid with respect to a New-Jersey corporation, did not purport to divest that body of the authority to seek bankruptcy protection. The Third Circuit also ruled, among other things, that the bankruptcy court would not have been deprived of subject matter jurisdiction over the case even if the board had lacked authority to file for chapter 11 case, although the lack of such authority could be "cause" to dismiss the filing.
Estimation of Bankruptcy Claims. In In re FTX Trading, Ltd., No. 22-11068, 2025 WL 3470890, (D. Del. Dec. 3, 2025), U.S. Circuit Judge Thomas L. Ambro, sitting on the U.S. District Court for the District of Delaware, ruled that a bankruptcy court did not err in applying a significant discount (approximately 99.9%) to the claimed value of cryptocurrency assets held by chapter 11 debtor FTX Trading, Ltd. ("FTX"). The district court agreed that the bankruptcy court's "blockage" model valuation methodology for estimating the claims was appropriate because the model recognized that FTX and its affiliates held the vast majority of the tokens, meaning that any attempt to sell them wholesale would have rendered them almost valueless in a liquidation scenario. The ruling wiped out approximately $800 million in claims asserted by a group of creditors that had asserted more than $1.1 billion in claims based on the tokens' inflated market prices.
Executory Contracts and Unexpired Leases. Section 365(d)(5) of the Bankruptcy Code provides that, pending the decision to assume or reject an unexpired commercial personal property lease in a chapter 11 case, the trustee or debtor-in-possession must timely perform all of the debtor's obligations under the lease "first arising" during the period 60 days after the bankruptcy petition date, unless the bankruptcy court orders otherwise. Courts disagree, however, regarding when the debtor's obligations "arise," with two different approaches staked out by bankruptcy and appellate courts, including several federal circuit courts. The "billing date" approach focuses on the date obligations are billed or become due under the terms of the lease, whereas the "accrual" approach examines when obligations accrue under the lease regardless of when they are billed or become due. The U.S. Court of Appeals for the Second Circuit weighed in on the debate as a matter of apparent first impression in In re Avianca Holdings S.A., 127 F.4th 414 (2d Cir. 2025), cert. denied, No. 25-25, 2025 WL 3198581 (U.S. Nov. 17, 2025). The Second Circuit adopted the majority "billing date" approach to determine the obligations that must be paid under section 365(d)(5). In so ruling, the Second Circuit joined with the Third, Sixth, and Seventh Circuits on this issue. According to the Second Circuit, "the billing date approach is the approach most consistent with the text of Section 365(d)(5), the Bankruptcy Code as a whole, and sound bankruptcy policy."
Reopening Bankruptcy Cases. Section 350(b) of the Bankruptcy Code permits a bankruptcy court under certain circumstances to reopen a bankruptcy case even after the estate has been fully administered and the case is closed. In In re Congoleum Corp., 149 F.4th 318 (3d Cir. 2025), the U.S. Court of Appeals for the Third Circuit reconsidered whether it was appropriate to reopen a chapter 11 case that had been closed for more than a decade to determine whether environmental claims asserted against one of the debtor's former affiliates based upon the debtor's use of asbestos in its flooring products were barred by the order confirming the debtor's chapter 11 plan.
The Third Circuit ruled that the bankruptcy court properly reopened the debtor's chapter 11 case and had subject matter jurisdiction to do so even though the order confirming the debtor's plan had been issued by a district court, rather than the bankruptcy court. The majority also found no fault with the bankruptcy court's determinations that: (i) the party opposing reopening of the bankruptcy case had adequate notice of and was bound by provisions in the plan and confirmation order stating that the former affiliate was never liable for the debtor's environmental liabilities; and (ii) the terms of the plan were not a third-party release that violated federal environmental law.
From the Top
Until the U.S. Supreme Court handed down its ruling in U.S. v. Miller, 145 S.Ct. 839 (2025), the federal circuit courts of appeals (and many lower courts) were split regarding whether the abrogation of sovereign immunity by governmental units in section 106(a) of the Bankruptcy Code with respect to avoidance actions commenced under section 544(b) (allowing a trustee to assert certain claims that could have been asserted by creditors under applicable non-bankruptcy law) also extends to the causes of action arising under applicable non-bankruptcy law that a "triggering" or "predicate" creditor would be precluded from asserting outside of bankruptcy due to sovereign immunity. In Miller, the Court ruled that the abrogation of sovereign immunity in section 106(a) applies to avoidance claims under section 544(b), but not to state law claims that could otherwise be invoked by triggering creditors under applicable non-bankruptcy law. According to the 8–1 majority, section 106(a)'s text, context, and structure clearly indicate that the provision does not modify section 544(b)'s substantive requirements, which tie a bankruptcy trustee's rights to the rights of an actual creditor under "applicable law." In short, the Court concluded, if no creditor could assert a cause of action under applicable non-bankruptcy law due to the government's sovereign immunity, a bankruptcy trustee is similarly constrained by that defense.
On June 9, 2025, the Court granted certiorari in Coney Island Auto Parts Unlimited Inc. v. Burton, No. 24-808 (U.S.), where, to resolve a split in the circuits, it will decide whether there is a time limit under Fed. R. Civ. P. 60(b)(4) to set aside a default judgment for lack of personal jurisdiction. Key precedent for the Court will include a bankruptcy case, United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 275 (2010), where the Court said that "Rule 60(b)(4) does not provide a license for litigants to sleep on their rights," perhaps suggesting there can be a limit for Rule 60(b)(4) motions. However, constitutional law was not a focus in Espinosa. In Coney Island, the U.S. Constitution and the Due Process Clause will be at the forefront. Coney Island involved a default judgment where, allegedly, there never was personal jurisdiction over the defendant. Argument in the case took place on November 4, 2025, with a ruling anticipated early in 2026.
On October 20, 2025, the Court agreed to hear an appeal challenging a "rigid" and "unforgivable" rule used by some bankruptcy courts that permanently blocks a debtor from pursuing litigation if the debtor knew, but did not disclose, the allegations in its bankruptcy case. At issue is how bankruptcy courts in various circuits use judicial estoppel, which allows judges to block a debtor's claims if they were not disclosed during its bankruptcy case. The doctrine is meant to ensure fairness by punishing parties for taking inconsistent positions in litigation, but the circuits are split over how strictly it should be applied. The case is Thomas Keathley v. Buddy Ayers Construction, Inc., No. 25-6 (U.S.).
Legislative and Regulatory Developments
Several pieces of bankruptcy legislation were proposed in 2025 during the 119th Congress (2025–26), but none was enacted into law before the end of the year. Proposed business bankruptcy legislation included:
The "Protecting Employees and Retirees in Business Bankruptcies Act of 2025" (S.1381), which would have amended various provisions of the Bankruptcy Code, including sections 502, 503, 507, 1113, 1114, and 1129, to improve protections for employees and retirees in business bankruptcies by, among other things: (i) increasing the maximum value of employee wage claims entitled to priority payment; (ii) tightening the conditions under which collective bargaining agreements can be rejected in bankruptcy; (iii) toughening the procedures for reducing or eliminating retiree benefits; (iv) raising the threshold for obtaining court approval for executive bonuses and other payouts to senior executives (among others); (v) ensuring that company insiders cannot retain their retirement or health benefit plans if rank-and-file workers have lost their benefits through the bankruptcy process; and (vi) clarifying that the principal purpose of chapter 11 is to preserve jobs and economically productive activity to the greatest extent possible.
The "Bankruptcy Administration Improvement Act of 2025" (S.1659) (S.3424) (H.R.3867), which would have updated the administrative aspects of the bankruptcy system by, among other things, doubling the base compensation for chapter 7 trustees, changing the formula for paying chapter 11 quarterly fees, and extending the terms of certain temporary bankruptcy judgeships to help manage caseloads. The variable top rate used in calculating quarterly fees paid to the government in chapter 11 cases would have increased from 0.8% to 0.9%. A current five-year lookback period would also have been extended to 10 years, potentially locking in the top rate for longer. The formula would also have ensured a minimum of $5.4 million in annual fees be paid from chapter 11 quarterly fees into the U.S. Trustee System Fund. The bill would also have extended from 2026 to 2031 the timeline during which chapter 11 fee rules are in effect. The U.S. Senate's version of the bill (S.3424) was passed by the House of Representatives on January 12, 2026, and the bill was signed into law by the President on February 6, 2026.
An amendment to the "National Defense Authorization Act for Fiscal Year 2026" (S.2296), which would have renewed the higher debt limits for subchapter V chapter 11 cases and chapter 13 cases that expired in June 2024. Specifically, the amendment would have extended the Bankruptcy Threshold Adjustment and Technical Corrections Act of 2022 (Public Law No. 117-151) for two more years and contained a retroactivity provision for cases commenced on or after the June 21, 2024, sunset.
Amendments to the Federal Rules of Bankruptcy Procedure ("Fed. R. Bankr. P.") and the Official Bankruptcy Forms became effective on December 1, 2025. The changes include an amendment to Fed. R. Bankr. P. 8006 to clarify that any party may petition a federal circuit court of appeals for direct appeal of a bankruptcy court ruling.
More details can be found on the United States Courts website.
