A prepackaged bankruptcy is a Chapter 11 case in which the company negotiates its plan with key creditors and collects their votes before it files. In asbestos cases, the company typically agrees in advance with claimants' lawyers and a future claimants' representative on a trust, so the case can move faster than a traditional bankruptcy.
Origin
Prepackaged plans have long been used in corporate restructurings to shorten time in bankruptcy. Asbestos defendants began using them more often around the late 1990s and early 2000s, when a wave of companies sought Section 524(g) protection. Courts reviewing some of those plans looked closely at how votes were obtained and whether some claimants were treated better than others.
Significance in Asbestos Context
A prepackaged case can mean a shorter pause in lawsuits and a trust that opens sooner. But because the deal is struck before filing, claimants have less chance to negotiate or object during the case, and the fairness of the vote depends on who was solicited and how. Concerns have been raised in some cases about payments promised to certain claimants before filing, which can affect whether the 75 percent vote required for an asbestos trust is fair. Courts must still find that the plan meets all the requirements of the Bankruptcy Code and Section 524(g), including appointment of a representative for future claimants, and some prepackaged asbestos plans have been rejected or sent back on appeal. For a claimant, the practical result is usually the same as in any asbestos bankruptcy: claims against the company go to the trust.
Example Sentence
The gasket maker filed a prepackaged bankruptcy with its asbestos trust terms already agreed, and the plan was confirmed within months.
Related Terms
Plan of Reorganization, Chapter 11, 524(g) Trust, Future Claimants' Representative, Channeling Injunction, Texas Two-Step
Notes
- If a defendant files a prepackaged bankruptcy during your case, your lawsuit against that company will usually stop; ask your lawyer about the timeline.
- Trust claims can usually be filed once the trust opens, which may be sooner in a prepackaged case.
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This page is provided for general informational purposes and does not constitute legal advice. Every asbestos case turns on its own facts, exposure history, diagnosis, deadlines, available evidence, and applicable law. Reviewing this page does not create an attorney-client relationship. For advice about your specific situation, call 833-4-ASBESTOS for a free case review.