U.S. Sens. Elizabeth Warren (D-MA) and John Cornyn (R-TX) recently introduced legislation that would require individuals and corporations to file for bankruptcy in the district where they are located.
The Bankruptcy Venue Reform Act of 2017 is designed to prevent the practice of “forum shopping” in Chapter 11 bankruptcy cases.
“Closing the loophole that allows corporations to ‘forum shop’ for districts sympathetic to their interests will strengthen the integrity of the bankruptcy system and build public confidence,” Cornyn said. “I urge my colleagues to support this bipartisan, common-sense solution to ensure equal access to the courts in bankruptcy proceedings.”
Specifically, the bill would require individual debtors to file for bankruptcy in the district where their residence or principal assets is located and corporations to file where their principal assets or place of business is based.
Further, corporate debtors would no longer be permitted to file simply on the basis of their state of incorporation. It would also stop debtors from filing for bankruptcy in another district simply because an affiliate of the debtor has filed there. Further, courts would be required to transfer or dismiss cases filed in the wrong district.
“Workers, creditors, and consumers lose when corporations manipulate the system to file for bankruptcy wherever they please,” Warren said. “I’m glad to work with Senator Cornyn to prevent big companies from cherry-picking courts that they think will rule in their favor and to crack down on this corporate abuse of our nation’s bankruptcy laws.”
The measure is endorsed by the Commercial Law League, Texas Bankruptcy Bar Association, Texas Hotel & Lodging Association, Boston Bar Association, Ag & Business Legal Strategies, and Iowa Bankers Association.