Available at: https://scholarship.law.stjohns.edu/bankruptcy_research_library/373/
Summary:
This note surveys the state of “non-debtor stays” after the Supreme Court’s Harrington v. Purdue Pharma decision, in which the Court held that the Bankruptcy Code does not authorize a plan provision that “effectively seeks to discharge claims against a non-debtor without the consent of affected claimants.” While Purdue involved a permanent injunction in favor of the Sackler family in a Chapter 11 case, post-Purdue lower courts have read the decision narrowly—distinguishing between prohibited permanent nonconsensual third-party releases and still-permissible temporary stays or preliminary injunctions protecting non-debtors when necessary for a debtor’s reorganization.
The note reviews three examples:
- Delaware- In re Parlement Techs: recalibrated “likelihood of success on the merits” for preliminary injunctions, finding temporary non-debtor relief can still be granted if essential to reorganization or likely to be replaced by a consensual release.
- S.D.N.Y.- In re Hal Luftig Co.: extended an automatic stay to a non-debtor for five years where the individual’s continued involvement was essential to the plan, even over the objection of the largest creditor.
- N.D. Ill.- In re Coast to Coast Leasing: adopted Delaware’s reasoning and upheld temporary non-debtor injunctive relief to facilitate reorganization.
The author emphasizes that courts are preserving this relief by keeping it temporary, tied to reorganization needs, and analytically distinct from the *Purdue*-barred permanent releases.
Commentary:
This discussion—like Purdue, much of the legal scholarship, and the practice norms of nearly every Chapter 11 lawyer, judge, and the U.S. Trustee program—almost completely ignores the fact that Congress has already confronted the question of co-debtor protections and codified a clear, express answer in 11 U.S.C. § 1301. That section provides an automatic co-debtor stay in Chapter 13 cases, halting collection efforts against an individual liable with the debtor on a consumer debt, unless relief from stay is granted. Congress thereby demonstrated two important points:
1. It knows how to authorize co-debtor protections when it wants to.
2. It chose to do so only in the Chapter 13 context, for consumer debts, with specific exceptions and procedures for relief.
Seen through that lens, the entire post-Purdue debate over whether courts can fashion non-debtor stays under §§ 105 and 362 in Chapter 11 reorganizations is not just a matter of statutory silence—it’s a matter of statutory choice. Congress gave Chapter 13 debtors and their co-obligors a tailored protection and omitted any similar provision for Chapter 11. The judicial creativity in finding temporary workarounds in Chapter 11 thus sits uneasily beside the plain text and structure of the Code.
From a consumer bankruptcy perspective, Purdue and this note are reminders that while courts and practitioners in the business reorganization world are struggling to salvage a form of co-debtor relief, Chapter 13 debtors already enjoy it automatically. The difference is not accidental—it’s a policy choice Congress made to encourage individuals to file under Chapter 13 rather than Chapter 7, and to preserve household stability by protecting co-signers during plan performance.
Yet, the lack of recognition of § 1301 in academic writing and large-scale Chapter 11 commentary reflects a broader pattern: consumer-specific provisions are often treated as quirky footnotes rather than integral parts of the Bankruptcy Code’s design. That blind spot leads to doctrinal debates that sometimes reinvent (or contradict) solutions already on the books. A more coherent bankruptcy discourse—especially in light of Purdue—would grapple with why Congress expressly gave a statutory co-debtor stay to Chapter 13 but not to Chapter 11, and whether any expansion of non-debtor protections in business reorganizations ought to come from Congress, not from judicial improvisation.
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