August 5, 2025
A ruling in a bankruptcy case will help ensure that employers cannot use bankruptcy proceedings to dodge certain debts, including wages that they failed to pay employees. The U.S. Court of Appeals for the Eleventh Circuit held in Benshot, LLC v. 2 Monkey Trading, LLC that under Subchapter V of Chapter 11 of the Bankruptcy Code, the rules governing which debts can be discharged apply to both individual and corporate debtors. The July 2025 decision reverses a lower court opinion that said that Subchapter V’s prohibition on the discharge of debts that arise from “fraud” or from “willful and malicious injuries” only applied to individuals, not corporations.
As explained in an amicus brief written by former Public Justice Center Murnaghan Fellow Melanie Babb, employers too often use bankruptcy as a shield against wage theft claims. Ensuring that both corporate and individual debtors are subject to the Bankruptcy Code’s nondischargeable debt provisions is important to preserving workers’ ability to recover unpaid wages. To illuminate the potential impact their decision could have on workers, the brief from the Public Justice Center, Cohen Milstein Sellers & Toll, Centro de los Derechos del Migrante, Inc., Florida Legal Services, Georgia Legal Services Program, National Center for Law and Economic Justice, National Employment Law Project, and Southern Poverty Law Center provided the Court with context on how wage theft affects workers throughout the Eleventh Circuit region of Alabama, Georgia, and Florida. The brief described the challenges workers face in holding employers accountable, including fear of retaliation, lack of state enforcement of wage laws in most of the region, inadequate federal enforcement, and the difficulty of collecting unpaid wages and damages through litigation. The brief also explained that businesses engaged in wage theft are especially likely to be the kinds of businesses eligible for Subchapter V bankruptcy. Thus, if the Court codified this loophole, inadequate enforcement against wage theft would grow.
The Eleventh Circuit’s ruling continues the PJC’s successful advocacy in similar bankruptcy cases across the country. The Benshot victory builds on the work of former Murnaghan Fellows Michael Abrams and Hayley Hahn, which contributed to favorable decisions in Cantwell-Cleary Co. v. Cleary Packaging in the U.S. Court of Appeals for the Fourth Circuit (covering Maryland, Virginia, West Virginia, North Carolina, and South Carolina) and In the matter of GFS Industries, LLC, Avion Funding, LLC v. GFS Industries, LLC in the U.S. Court of Appeals for the Fifth Circuit (covering Mississippi, Louisiana, and Texas ).
Many thanks to our co-counsel Christine Webber at Cohen Milstein Sellers & Toll PLLC and our co-amici Centro de los Derechos del Migrante, Inc., Florida Legal Services, Georgia Legal Services Program, National Center for Law and Economic Justice, National Employment Law Project, and Southern Poverty Law Center.
