The United States Bankruptcy Court for the District of New Jersey rejected the pre-packaged bankruptcy plan presented by the debtors and asbestos claims representatives. In re Congoleum Corp., No. 03-51524, 2007 WL 328694 (Bankr. D.N.J. Jan. 26, 2007). In addition, the court rejected a plan proposed by a group of insurers. In re Congoleum Corp., No. 03-51524, 2007 WL 328700 (Bankr. D.N.J. Feb. 1, 2007).

In addressing the latest iteration of the debtors and asbestos claims representatives' pre-packaged plan, the court rejected the plan for a number of reasons. Of particular importance to the court was the improper, favorable treatment granted to the class of asbestos plaintiffs represented by two attorneys advocating adoption of this plan. Further, the court questioned the debtors' contributions to the plan, criticizing the debtors for attempting to free "themselves of what they describe as crushing asbestos liability while offering what appears to be little other than insurance proceeds in return."

The court, however, was similarly critical of the plan proposed by a group of insurers. The court found this plan unacceptable for its attempt to use a § 105(a) injunction to funnel asbestos claims and release the insurers from future liabilities, rather than use a § 524(g) injunction, which was explicitly designed for asbestos claims. The court also criticized the plan's separate classification of insurers' claims as distinct from other unsecured creditor claims.

The debtors and asbestos claims representatives have sought appeal of the court's ruling that rejects their plan of reorganization. Although leave for appeal is asserted of right, and no party has challenged the right to appeal, the United States District Court for the District of New Jersey has not yet asserted jurisdiction over the appeal.