Nondebtor Release Prohibition Act of 2021

The Nondebtor Release Prohibition Act of 2021 aims to prevent individuals and corporations from using another entity’s bankruptcy to shield themselves from legal liability. Under current law, bankruptcy courts can sometimes grant "nondebtor releases," which permanently block lawsuits against third parties—such as corporate executives or owners—even if those individuals have not filed for bankruptcy themselves.

If passed, this bill would generally prohibit courts from releasing these third parties from legal claims without the express consent of the people suing them. It also seeks to prevent a maneuver known as the "Texas Two-Step," where a company splits into two entities to shift its legal liabilities into a new unit that immediately files for bankruptcy. For everyday citizens, this legislation would ensure that they maintain the right to pursue lawsuits against solvent individuals or organizations for harm caused, regardless of whether a related company has filed for bankruptcy protection.