Are third parties protected in bankruptcy cases?

On Behalf of | Feb 16, 2022 | personal bankruptcy |

For many years, in bankruptcy cases across the United States, if a business was subject to litigation, third-party investors (or others who were involved with that business in some way) were protected from litigation. However, that situation may be changing. At the end of 2021, a federal judge made a decision that made significant investors subject to litigation, just like the pharmaceutical company itself. Those third parties with no direct debt may no longer be protected.

This decision is not necessarily only about one case. It is a groundbreaking decision that may affect many cases like it going forward. In the past, it was routine practice that in a business restructuring because of debt, outside investors were exempt from responsibility for the debt. This question of responsibility has been coming up for many years but it is not until recently that a decision was made that third-party protection may no longer apply.

Protection against creditors in the midst of bankruptcy

According to bankruptcy law, businesses and people have always been protected against creditors. In those cases, the people who were not directly responsible for paying the debt were not held accountable. That was especially true if the third party contributed funds to the restructuring of the business.

This decision as a precedent could greatly affect Chapter 11 bankruptcy cases going forward. However, there are those who feel that nondebtor protection should not be allowed to continue and they are in favor of this recent decision because the protection encourages businesses to accept financial contributions without consequence.

Seeking valuable counsel from a knowledgeable bankruptcy lawyer

If you are struggling with a bankruptcy case, a knowledgeable bankruptcy lawyer may prove to be valuable to your case. Having expert advice can help you to gain a deep understanding and insight into what you need to do and what you can expect in the future.

As difficult as bankruptcy is, it does not say that you will never again be successful in business. In fact, it can be a chance to have a fresh start and to go in different directions that are new and innovative.