A Houston-based bankruptcy judge has given the approval to the bankrupt auto parts maker First Brands to move ahead with a liquidation plan that would fund lawsuits against the company’s indicted founder and other insiders in an attempt to recoup money for creditors.
US Bankruptcy Judge Christopher Lopez allowed First Brands to solicit votes on its preferred proposal for winding down its business, rejecting demands from a government watchdog and some creditors who asked the court to convert the case to a quicker and more straightforward Chapter 7 liquidation, bringing a court-appointed trustee into play.
While stating that First Brands deserves a chance to see if its creditors will support its litigation strategy, Lopez said he would consider approving the wind-down plan at a court hearing in July.
First Brands collapsed into bankruptcy in September 2025 after its lenders began investigating allegations about the auto parts maker fraudulently double-pledging its assets as collateral on multiple loans. During the bankruptcy phase, First Brands failed to reorganize its organization, leaving the venture unable to repay more than USD 11 billion in debts. Since the company’s bankruptcy, its founder Patrick James and his brother Edward James have been indicted on federal fraud charges.
First Brands’ collapse also created headlines since September 2025, as the incident caused losses for some of Wall Street’s largest investment firms, apart from sparking concerns about fund managers’ exposure to troubled borrowers in the private credit sector. As per Reuters, the company’s financial state has only worsened in the months since it filed for bankruptcy, with its lenders possibly having to take in losses even on the additional USD 1.1 billion in new money that they provided at the start of First Brands’ bankruptcy.
“That money ran out in January, forcing First Brands to rely on prepayments from key parts buyers like Ford and GM. First Brands sought to find a buyer for the whole company but was able to sell only a few business lines to generate a fraction of the amount it borrowed under the bankruptcy loan. First Brands sold its Horizon Towing business for USD 64 million, its Toledo Molding & Die business for USD 80 million, and its Walbro business for USD 50 million. First Brands does not have enough money to repay debts racked up after its bankruptcy filing, which are typically treated as ‘administrative expenses’ that must be repaid before all other debts,” the media outlet reported further.
As per the Office of the US Trustee, which acts as the US Justice Department’s bankruptcy watchdog, First Brands is USD 223 million behind on administrative expenses, including debts to vendors who shipped parts to First Brands after it filed for bankruptcy.