A US bankruptcy judge has rejected First Brands' Chapter 11 plan to repay creditors via litigation against insiders, ordering conversion to Chapter 7 liquidation.

The rejected plan had called for setting up litigation trusts to bring lawsuits intended to secure further funds for creditors on an ongoing basis.

The auto parts manufacturer's plan was deemed unworkable by US Bankruptcy Judge Christopher Lopez, who pointed in part to its provision for delaying repayment on no less than $222m in debt racked up throughout the bankruptcy proceedings.

Beyond this, First Brands owes several billion dollars stemming from before it entered bankruptcy, and efforts to offload various business divisions brought in only a small portion of what is owed to creditors.

“Unfortunately, time was not on the debtor's side. The sales process did not render the types of sales prices I'm sure everybody wanted,” Lopez was quoted by Reuters as saying.

First Brands entered bankruptcy in September 2025 holding roughly $14m in cash against liabilities topping $9bn.

The firm subsequently took on an additional $1.1bn in borrowing from its current group of lenders early into the bankruptcy period.

Most of these funds had been used up by January, pushing the company to depend on advance payments from major clients such as Ford and General Motors.

According to Lopez, these legal actions were expected to raise $1.9bn before administrative claims – which hold priority status under bankruptcy law – could be settled in full.

Objections came from creditors as well as the bankruptcy oversight arm of the US Justice Department, both of whom raised doubts over whether pursuing litigation would yield any substantial recovery from those involved, including company founder Patrick James.

While First Brands sought a buyer for its operations in their entirety, it managed to offload only certain segments: towing division Horizon Global for $64m, Toledo Molding & Die for $80m, and Walbro for $50m.

“This is one of the most complicated cases in recent history, especially the way it started,” Lopez opined, reported the Financial Times. “There is nothing left to reorganise.”

First Brands has already closed 17 manufacturing plants and eliminated 4,000 positions.

The company has continued working to divest its remaining parts-manufacturing facilities, following the discovery of widespread misconduct by incoming leadership and lenders' reluctance to finance a turnaround of the wider group.

The company had previously reached an agreement in March to sell a portfolio of brands to Premium Guard for $25m, a move that followed its failure to line up rescue funding and the loss of key customers.