HR-7370-116
Ordered to be Reported (Amended) by the Yeas and Nays: 20 - 10.
Sponsored by Jerrold Nadler (D-NY)
What it does
This bill would modify Chapter 11 business bankruptcy law in two main ways. First, it would expand the financial claims and payment priorities available to workers and retirees — including higher wage claim limits, severance pay as an administrative expense, and new claims for pension and defined contribution plan losses. Second, it would restrict executive compensation during bankruptcy proceedings and prohibit executives from receiving retiree benefits that were cut or eliminated for other employees.
Who benefits
Rank-and-file employees of bankrupt companies, who would receive higher priority and larger wage and benefit claims. Retirees whose pension or defined benefit plans are at risk during bankruptcy. Workers covered by collective bargaining agreements, who would gain stronger procedural protections before those agreements can be rejected. Employees owed severance pay, whose claims would be treated as administrative expenses — a higher-priority category. Workers in defined contribution plans (e.g., 401(k)s) harmed by employer fraud or fiduciary breaches.
Who is hurt
Secured and unsecured creditors (e.g., bondholders, banks, suppliers) who would move lower in the repayment priority queue as employee and retiree claims are elevated. Executives and senior employees of bankrupt firms, who would face caps on compensation enhancements and lose access to certain retiree benefits. Potential buyers of bankrupt business assets, who would face new court scrutiny over job retention and benefit assumption. Shareholders, who typically recover last in bankruptcy and would see the pool of assets available to them further reduced.
Supporters argue
Supporters argue that current bankruptcy law systematically favors financial creditors over the workers who built a company's value. When a business fails, employees and retirees — who cannot diversify their risk the way investors can — often lose wages, pensions, and health benefits they were promised and earned. This bill would correct that imbalance by ensuring workers are treated as priority creditors rather than afterthoughts. Supporters also contend that restricting executive pay during bankruptcy closes a well-documented loophole: executives have historically awarded themselves large bonuses and enhanced retirement packages at the very moment they are cutting benefits for ordinary workers. Requiring courts to weigh job preservation when approving asset sales would further protect communities that depend on those employers.
Opponents argue
Opponents argue that elevating employee and retiree claims above those of secured creditors would undermine the predictability that makes bankruptcy financing possible. Lenders price credit based on their expected recovery in a default scenario; if that recovery is reduced by statute, they would respond by tightening credit terms or refusing to lend to riskier businesses — potentially accelerating the very bankruptcies the bill aims to address. Opponents also contend that restricting executive compensation could make it harder to retain the experienced managers needed to successfully reorganize a distressed company, reducing the likelihood of a going-concern outcome that preserves jobs. The additional procedural requirements around collective bargaining agreements and asset sales could slow proceedings, increasing costs that ultimately reduce recoveries for all parties, including workers.
Constitutional context
Congress's authority to legislate bankruptcy is explicit in Article I, Section 8, Clause 4, which grants Congress the power to establish "uniform Laws on the subject of Bankruptcies throughout the United States." This is one of the clearest enumerated powers, so Commerce Clause limits (as tested in United States v. Lopez, 1995) are less central here. However, provisions that alter creditor priority or restrict contractual rights could implicate the Takings Clause (Fifth Amendment) and Due Process protections for secured creditors, echoing concerns raised in Cedar Point Nursery v. Hassid (2021) regarding government-compelled transfers of property interests. Post-Loper Bright (2024), any agency rules implementing the bill's standards would face independent judicial scrutiny rather than deference.
Checks and balances
This bill would shift authority toward the judicial branch, as bankruptcy courts would gain new mandates to evaluate executive compensation, weigh job-preservation factors in asset sales, and apply revised procedural standards for collective bargaining agreement rejections. Congress would be setting those standards by statute, constraining both debtor companies and bankruptcy judges. Executive branch agencies (e.g., the Department of Labor) could gain a role in implementing or enforcing benefit-related provisions, though post-Loper Bright, courts would independently review any agency interpretations of the new statutory language.
Historical precedent
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) previously modified executive compensation rules in bankruptcy, including restrictions on retention bonuses. The Pension Benefit Guaranty Corporation (PBGC) framework, established under ERISA (1974), similarly sought to protect retiree benefits when employers become insolvent.