Nonconsensual third-party releases are not permissible under a chapter 11 plan. Courts are now left to work out what "consent" actually means.

In 2024, the U.S. Supreme Court in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024)(hereinafter, "Purdue"), held that the Bankruptcy Code did not provide a statutory basis for nonconsensual third-party releases to be approved under a chapter 11 plan.

The Court, however, did not prohibit consensual third-party releases, nor did it decide what constitutes consent. "Nothing in what we have said should be construed to call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan. ... Nor do we have occasion today to express a view on what qualifies as a consensual release." Since Purdue, courtrooms across the country have grappled with what constitutes consent, with varying — and evolving — results. Essentially, the debate turns on whether a court requires creditors to affirmatively opt into granting a third-party release (e.g., by checking a box to opt in) before they are bound by it, or requires creditors to opt out if they do not want to be bound. At times, that may depend on whether the court looks to state or federal law.

Some courts hold that opt-out releases are valid as long as there is clear and conspicuous notice. Others say the permissibility of opt-out releases depends on whether the parties granting such releases are entitled to vote and/or will receive any recovery under the proposed plan. Still others require parties to opt in to manifest consent to third-party releases.

This article examines some of the approaches taken by various courts in the wake of Purdue and offers practical takeaways depending on the facts of a particular case.

Post-Purdue, some courts have permitted use of an opt-out mechanism to bind parties to third-party releases. Typically, these courts require clear and conspicuous notice of the release, the opt-out procedures, and the consequences of not opting out.

For example, in a 2025 decision in Spirit Airlines' first bankruptcy case, Southern District of New York bankruptcy judge Sean Lane applied federal bankruptcy law and approved an opt-out mechanism for third-party releases. He allowed them in large part due to the clear and prominent notice and explanation of the third-party releases provided to those deemed to consent, including in the ballots and the opt-out form. See In re Spirit Airlines, Inc., 668 B.R. 689, 707-08 (Bankr. S.D.N.Y. 2025).

Moreover, there was a clear procedure for opting out, the parties discussed the third-party releases throughout the case (which was well-publicized), the creditors had a clear economic incentive to pay attention to the bankruptcy case given they were promised a full or substantial recovery, and the only impaired class consisted of parties to a restructuring support agreement that overwhelmingly supported the plan.

The court, therefore, held that the opt-out procedure was valid even with respect to non-voting and abstaining creditors.

Judge Lane again approved an opt-out mechanism in In re Azul S.A., 676 B.R. 277 (Bankr. S.D.N.Y. 2026), finding the result would be the same either under federal or state law. Before Judge Lane's decision, the Debtors in Azul had made the opt-out mechanism only applicable to creditors that voted on the plan.

Importantly, the decision came after the District Court for the Southern District of New York rejected an opt-out mechanism in another airline case weeks earlier (described below).

Other courts have permitted opt-out mechanisms as constituting consent to third-party releases, but only for certain parties.

Creditors who reject the plan For example, in In re Pat McGrath Cosms. LLC, 679 B.R. 591, 601-02 (Bankr. S.D. Fla. 2026), the bankruptcy court, applying federal law, permitted an opt-out mechanism. But under her so-called hybrid approach, Judge Isicoff found the opt-out mechanism was not proper for creditors who rejected the plan or had a claim or interest that was deemed to reject the plan.

Non-voting parties and parties recovering little or nothing Even before Purdue, the Fifth Circuit did not permit nonconsensual third-party releases under a plan, giving courts in that Circuit prior experience with determining what constitutes consent.

After Purdue, in In re Container Store Grp., Inc., 676 B.R. 356 (S.D. Tex. 2026), the Southern District of Texas District Court, applying federal law, affirmed the opt-out releases approved by the bankruptcy court in part.

But the District Court held the bankruptcy court erred in finding that subordinated claim holders and equity holders, who were receiving nothing under the plan (and were deemed to reject the plan), consented. The ruling is currently on appeal to the Fifth Circuit.

In the wake of the District Court's ruling, some bankruptcy courts in the Southern District of Texas continue to approve opt-out mechanics but, in some cases, courts have required that nonvoting classes and/or classes not receiving any recovery are carved out of the releases, in accordance with the Container Store District Court opinion.

For example, in Luminar, the debtors amended the plan to remove classes of creditors and equity holders who were not receiving any recovery and were deemed to reject the plan from the opt-out. See In re Luminar Technologies, Inc., Case No. 25-90807, Docket Nos. 558 and 581 (Bankr. S.D. Tex. Mar. 30, 2026).

Similarly, in Office Properties and Cumulus Media, the judges approved opt-outs for certain parties, but required others (e.g., holders of equity interests) to affirmatively opt in. See In re Office Properties Income Trust, Case No. 25-90530, Docket Nos. 1223 and 1241 (Bankr. S.D. Tex. Apr. 22, 2026); In re Cumulus Media Inc., Case No. 26-90346, Docket Nos. 225 and 243 (Bankr. S.D. Tex. Apr. 15, 2026).

In addition, some courts require that parties who abstain (do not vote to accept or reject) are not bound by the third-party releases, unless they separately opt-in. See, e.g., In re Del Monte Foods Corporation, Inc., Case No. 25-16984, Docket No. 1592 (Bankr. D.N.J. May 22, 2026). Does silence equal consent?

Some courts have said that consent generally requires an affirmative opt-in. Judge Cote took this approach in In re GOL Linhas Aereas Inteligentes S.A., 675 B.R. 125, 131 (S.D.N.Y. 2025), in the Southern District of New York: "[T]he general principles of contract law, as embodied in the Restatement of Contracts, establish that, outside of rare exceptions, consent cannot be implied from silence." Judge Cote said that regardless of whether federal or state law applied, opt-out releases were not sufficient to establish consent.

In the Buffalo Diocese bankruptcy case, after nearly six years of fighting, the debtor Diocese and the creditors' committee, who represented abuse victims, agreed to a deal where participating parties and settling insurers agreed to make substantial contributions.

These contributions, totaling more than $280 million, when combined with the Debtor's contribution meant that abuse claimants were going to receive recoveries from a settlement trust funded in excess of $300 million. Third-party releases and injunctions, however, were critical to the non-debtor contributing parties' willingness to fund the contributions.

As such, the Diocese and the Creditors' Committee advocated for an opt-out release mechanism. But the United States Trustee objected and the bankruptcy court agreed, relying on state law: "The longstanding rule in New York is that silence does not constitute consent, except in instances where estoppel might apply." In re Diocese of Buffalo, N.Y., 677 B.R. 663, 666 (Bankr. W.D.N.Y. 2026), reconsideration denied, motion to certify granted, 678 B.R. 471 (Bankr. W.D.N.Y. 2026).

Nonetheless, in the Buffalo Diocese case, the Diocese identified a need to resolve claims being asserted not only against the Debtor, but also against affiliated entities, such as the parishes. The bankruptcy court, therefore, agreed to enter a case management order setting guidelines for the use of rapid prepackaged bankruptcy cases that the parishes and affiliated entities of the Diocese could use.

A similar approach was taken in the Diocese of Rockville Centre bankruptcy case and is being sought in the Diocese of Ogdensburg. At the same time, the underlying decision on opt-out releases in the Buffalo Diocese case was certified for direct appeal to the Second Circuit, where it joins the Gol ruling, also under appeal at the Second Circuit.

There is no one-size-fits-all strategy. Different judges and different facts can lead to different law. Therefore, it's critical to know your case (including what type of case it is, whether a prepackaged case, a mass tort case, a liquidating case, or something else), your facts (e.g. are creditors incentivized to pay attention, is the case well-publicized, are creditors incented to follow the case, what are they receiving, etc.), your judge, and the law.

In all cases, clear and conspicuous language explaining the releases being sought, the procedures for obtaining them, and the impact of consenting to them along with sufficient notice and due process are critical. This is true regardless of whether such releases are sought to be obtained by an opt-in or opt-out mechanism.

If courts require an opt-in mechanism, in cases where third-party releases are necessary to implement a transaction, and there is uncertainty about parties opting in, parties and their counsel should consider other options for obtaining third-party releases, including potentially filing for chapter 15 (where nonconsensual releases remain available).

In addition, parties should be open to opportunities to achieve substantially similar certainty, via other alternatives, including:

•A 363 sale (with an insurance policy buyback)•Rapid prepackaged bankruptcy cases so that entities can file bankruptcy and obtain the benefit of the discharge and related injunction•Relying on debtor releases of estate causes of action, which can include a release of derivative claim•Requiring individual claimant releases to entitle such claimant to receive a distribution•Section 524(g) channeling injunctions (where available)•Exculpation•Gatekeeping injunctions