Following the Supreme Court's June 27, 2024, decision in Purdue, which held that nonconsensual third-party releases are impermissible under the Bankruptcy Code, bankruptcy judges across multiple jurisdictions have been grappling with what constitutes a "consensual" release. Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024). This article analyzes how different judges have defined "consent" and provides guidance on best practices for structuring third-party releases.
Background and 'Purdue'
In a Chapter 11 bankruptcy, a plan of reorganization establishes a framework for a company to emerge from bankruptcy while continuing operations and paying creditors. Creditors whose rights are affected by the plan may vote on whether to accept or reject that plan. Over time, companies began incorporating the legal release of nondebtors into their plans. In Purdue, the Supreme Court held that creditors' claims against nondebtors (i.e., not Purdue) could not be extinguished without the affected creditors' consent. (Noting that "a bankruptcy court's powers are not limitless..."). The Purdue decision, however, was narrow, as the Supreme Court held that "[n]othing in what we have said should be construed to call into question consensual third-party releases[;]... those sorts of releases pose different questions and may rest on different legal grounds than the nonconsensual release at issue here." Nor did Purdue define "consent." In short, there was no discussion of whether affected creditors need to take affirmative action for third-party releases to be allowed.
Following Purdue, the permissibility of widely used opt-out releases remains an open question. An opt-out binds creditors to nondebtor releases should they fail to either vote or complete and return the applicable opt-out form. In contrast, an opt-in will only bind creditors who vote or check a box to "opt-in" on a plan ballot or opt-in form. While there is a consensus that requires creditors to opt-in to be bound by third-party releases constitutes "consent," the permissibility of acquiescence or silence through the traditional opt-outs is debated by bankruptcy judges post-Purdue and is often faced with objections by the United States Trustee's Office.
The Majority View in New York Considers Opt-Outs Consensual
Bankruptcy judges in the Southern District of New York have permitted the use of opt-outs where there is substantial creditor support for the chapter 11 plan and sufficient due process. Chief Judge Martin Glenn recently upheld nondebtor releases with opt-outs in GOL, observing that voluntary and knowing consent may be inferred from inaction if "there has been constitutionally adequate service of process..." In re GOL Linhas Aereas Inteligentes S.A., No. 24-10118 (MG), 2025 WL 1466055, at *24 (Bankr. S.D.N.Y. May 22, 2025). Similarly, in Spirit Airlines, Judge Sean H. Lane upheld the use of opt-outs because they were "clearly worded and prominently presented . . ." to apprise the parties of their rights. In re Spirit Airlines, Inc., 668 B.R. 689, 707 (Bankr. S.D.N.Y. 2025). Lane observed that the nondebtor releases were part of the plan since the start of the bankruptcy, noting that Spirit was not a situation where the affected creditors had "little or no economic incentive to pay attention to the bankruptcy, such as where a creditor is receiving no recovery or a de minim[i]s one." Therefore, debtors who elect to use opt-outs in the Southern District of New York should: (i) make that usage clear from the outset; (ii) use clear and bold language on all materials warning of the consequences of creditor inaction; and (iii) obtain significant support for the plan.
In contrast, Chief Judge Carl L. Bucki in the Western District of New York held that a nondebtor release with an opt-out rendered a plan nonconfirmable. In re Tonawanda Coke Corp., 662 B.R. 220, 222 (Bankr. W.D.N.Y. 2024). Relying on Purdue's holding that "nothing in the bankruptcy code contemplates (much less authorizes) [nondebtor releases,]" Bucki found that any proposal for third-party releases "is an ancillary offer that becomes a contract upon acceptance and consent" and is governed by state law. (Quoting Purdue, 603 U.S. at 223). Under New York law, an agreement to discharge an obligation is not enforceable unless it is in writing and signed by the party against whom it is sought, (citing N.Y. Gen. Oblig. Law §5-1103), and any failure to return an opt-out form does not meet that writing requirement. (Finding that "[c]onsent and failure to object are not synonymous") (citation omitted). Bucki also expressed concern that many may overlook the opt-out box for third-party releases. Thus, opt-ins are recommended for those New York bankruptcy judges, such as Bucki, who follow the minority "contract model" wherein the nondebtor release only becomes enforceable upon written acceptance and consent.
Opt-Ins or Hybrid Releases May Be the New 'Gold Standard' in Delaware
Delaware bankruptcy judges disagree on whether opt-outs are permissible. Post-Purdue, Judge Craig T. Goldblatt held, "a third-party release is no longer an ordinary plan provision that can properly be entered by 'default' in the absence of an objection[,]" adopting the contract model that requires creditors to affirmatively consent. In re Smallhold, Inc., 665 B.R. 704, 709, 720 (Bankr. D. Del. 2024); see also, Findings of Fact, Conclusions of Law and Order, In re SunPower Corp., Case No. 24-11649 (CTG) (Bankr. D. Del. Oct. 18, 2024), Dkt. No. 872 (approving third-party releases with opt-ins through voting to accept the plan or by submitting the applicable opt-in form). Indeed, opt-in provisions for third-party releases may be the new "gold standard" in Delaware. Transcript of Hr'g at 37:14-38:9; 41:14-23, In re First Mode Holdings Inc., Case No. 24-12794 (KBO) (Bankr. D. Del. Feb. 6, 2025), Dkt. No. 266 (Chief Judge Karen B. Owens finding that the plan's opt-in mechanism for third-party releases is the "gold standard" and a better approach rather than "something that will be subject to a potential appeal...").
However, other judges in Delaware appear to be more flexible, as some have approved a mixed opt-out/opt-in system (a "hybrid" mechanism) post-Purdue. For example, in FTX, Judge John T. Dorsey approved a plan with opt-outs for voting creditors while non-voting creditors were required to opt-in to the nondebtor releases. Order Approving the Disclosure Statement, In re FTX Trading Ltd., Case No. 22-11068 (JTD) (Bankr. D. Del. June 26, 2024), Dkt. No. 19068. In Fisker, Judge Thomas M. Horan permitted the use of opt-outs for creditors regardless of their voting status, but rejected the use of opt-outs for equity holders, reasoning that inaction by a party "receiving nothing under the plan..." is not consent. Transcript of Hr'g at 45:5-19, In re Fisker, Inc., Case No. 24-11390 (TMH) (Bankr. D. Del. Oct. 11, 2024), Dkt. No. 706 (being "consistent... with Dorsey and Judge Brendan L. Shannon . . ."). In Lumio, Judge Kate Stickles required the debtors to use an opt-in for classes not entitled to vote or to a recovery. Transcript of Hr'g at 24:2-22, In re Lumio Holdings, Inc., Case No. 24-11916 (JKS) (Bankr. D. Del. Jan. 3, 2025), Dkt. No. 428) (finding that there is no outright prohibition of opt-outs post-Purdue, but reasoning that she was "skeptical at this point that an opt-out [wa]s appropriate for any class of a creditor who's already been told that they're not entitled to vote and they are not entitled to a recovery or, with respect to the GUCs, the GUC recovery is unknown."). While this hybrid approach has traction, Delaware judges have parted ways from a traditional opt-out mechanism.
Opt-Outs Remain Viable in the Southern District of Texas and the District of New Jersey
Bankruptcy judges in the Southern District of Texas consistently hold that opt-outs can procure valid consent for nondebtor releases. Judge Christopher M. Lopez upheld opt-outs as consensual because creditors were afforded constitutional due process and a meaningful opportunity to opt-out. See In re Robertshaw US Holding Corp., 662 B.R. 300, 323 (Bankr. S.D. Tex. 2024) ("Hundreds of chapter 11 cases have been confirmed in this District with consensual third-party releases with an opt-out. And, again, Purdue did not change the law in this Circuit."); see also Order, In re DocuData Solutions, L.C., Case No. 25-90023 (CML) (June 23, 2025), Dkt. No. 834 at pp. 15-16 (Lopez finding that the third-party releases "are consensual under controlling precedent as to those releasing parties that did not specifically and timely object or opt-out of such releases"). Similarly, Judge Marvin Isgur found that opt-outs were consensual and held that a creditor's non-receipt of an opt-out form due to its own failure to file a proof of claim did not change the permissibility of opt-outs. In re Pipeline Health Sys., LLC, Case No. 22-90291 (MI), 2025 WL 686080, at *4 (Bankr. S.D. Tex. Mar. 3, 2025).
However, in the Northern District of Texas, Judge Scott W. Everett required affirmative consent via opt-in provisions. See Transcript of Proceedings at 11-15, In re Ebix, Inc., Case No. 23-80004-swell (Bankr. N.D. Tex. Aug. 2, 2024), Dkt. No. 851 (Because "nothing in the Bankruptcy Code or Rules contemplates or authorizes the deemed release of a non-debtor's claims against another non-debtor," whether the release is consensual "is more accurately construed as one of contract between those non-debtor parties.").
Like the Southern District of Texas, New Jersey bankruptcy judges have continued their pre-Purdue trend of permitting opt-outs so long as there is clear notice and full disclosure. See Transcript of Confirmation Hr'g at 64, 67, In re BowFlex, Inc., Case No. 24-12364-ABA (Bankr. D.N.J. Aug. 19, 2024), Dkt. No. 631 (Judge Andrew B. Altenburg, Jr. upholding opt-outs so long as the releasing parties receive due process and the consequences of the opt-outs are "clear and conspicuous" in the notice and emphasizing that "it is incumbent upon the parties who have been properly served with pleadings to protect their own rights"); see also Transcript of Decision at 14:10-16, In re Invitae Corp., Case No. 24-11362 (MBK) (Bankr. D.N.J. July 23, 2024), Dkt. No. 869 (Kaplan, J.);andTranscript of Confirmation Hr'g at 45:5-8, In re Sam Ash Music Corp., Case No. 24-14727-SLM (Bankr. D.N.J. Aug. 15, 2024), Dkt. No. 492 (Judge Stacy L. Meisel stressing that this court and "the majority of [c]ourts . . . in this Circuit ha[ve] held[] that an opt-out box that's conspicuously placed and complies with the rules... " is consensual).
Conclusion
The permissibility of opt-outs remains in flux since Purdue. Certain bankruptcy judges, such as those in the Southern District of New York, Southern District of Texas, and the District of New Jersey, maintain a broad view of consent and permit the use of opt-outs. In contrast, affirmative action by creditors, such as opting in to the releases, are the norm for bankruptcy judges in Delaware, the Northern District of Texas, and the Western District of New York.
Erring on the side of conservatism, it might be best to elect a hybrid approach, if not a full opt-in approach. Regardless of the mechanism that is utilized, the inclusion of third-party releases in a plan should be clearly disclosed to creditors from the onset of the bankruptcy filing, if not the initial filing of the chapter 11 plan. A debtor should sufficiently notify creditors of the consequences of their action or lack thereof during the voting process. Doing so will minimize the chance of a successful Purdue-based objection from the U.S. Trustee's office, and will increase the likelihood that the court will approve the inclusion of third-party releases in the plan.
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