Member urges Congress to close "Texas two-step" bankruptcy loophole to protect injury victims

A Representative asked the House Judiciary Committee to support legislation to close a corporate bankruptcy loophole commonly called the "Texas two-step," saying the tactic allows companies to shift liabilities into a spin-off entity that then declares bankruptcy, leaving injured plaintiffs with prolonged, uncertain compensation claims.

The lawmaker said corporations facing mass tort or injury-liability suits move assets to a parent company while spinning off liabilities to a new firm that files for bankruptcy, forcing plaintiffs to spend years seeking relief while the parent company continues operations. “By using this tactic, corporations facing a large number of injury liability lawsuits move their corporate entities to execute a divisive merger,” the Representative said during member day remarks.

The speaker named Johnson & Johnson and Georgia-Pacific as firms that have attempted the maneuver, citing talc-related cancer suits and asbestos litigation respectively. The Representative said the bill introduced last Congress would “deter corporations from abusing bankruptcy protections and ensure that injury victims can get their day in court.”

The Representative framed the proposal as bipartisan and bicameral and said it would rebalance the bankruptcy code in favor of honest debtors and injury victims rather than large corporations. No formal bill number or committee action was recorded during the member-day statements; members were given five legislative days to submit materials for the hearing record.

The hearing moved on without a markup or vote on the proposal; the committee chair adjourned the member day at the scheduled close.