The “Texas Two-Step” Comes for Solar Customers: How Forced Arbitration and Bankruptcy Work Together to Separate Homeowners From Their Rights
An educational article from Energy Consumer Law Group
If you financed rooftop solar with a loan, lease, or power purchase agreement (PPA), two documents were almost certainly signed the day the salesperson stood in your kitchen: a contract obligating you to pay for twenty years or more, and — buried inside it — an arbitration clause promising that if anything went wrong, you would never see the inside of a courtroom.
For years, solar companies and their lenders told courts that clause was sacred. Disputes belonged in private, one-on-one arbitration. No class actions. No juries. No public record.
Then the industry started collapsing — SunPower in 2024, Sunnova and Solar Mosaic in 2025, with others behind them — and something remarkable happened. The same companies that insisted individual arbitration was the only fair forum ran to a single federal bankruptcy court and asked it to freeze every consumer arbitration, gather every claim into one proceeding, and resolve them collectively — on the company’s terms, against an estate with almost nothing left in it.
That whipsaw — arbitration when it protects the company, collective bankruptcy when it protects the company — is the story of this article. It borrows its logic from the most controversial maneuver in modern bankruptcy law: the “Texas Two-Step.”
The Template: Separate the Assets From the People You Harmed
As Harvard Law School bankruptcy professor Jared Ellias explained in a Harvard Law Today interview, the classic Texas Two-Step works like this: a company facing mass lawsuits uses a Texas “divisional merger” statute to split in two. One entity keeps the valuable business; the other gets the lawsuits — and promptly files Chapter 11. Johnson & Johnson did it with its talc litigation (LTL Management); Georgia-Pacific (Bestwall), CertainTeed (DBMP), and Trane (Aldrich Pump) did it with asbestos claims. The injured lose their right to a jury, their leverage, and often any realistic path to payment, while the business that harmed them keeps operating outside bankruptcy, assets intact. The Third Circuit dismissed J&J’s first attempt in January 2023 for lack of genuine financial distress, and later attempts also failed — but the core move, split the value from the victims, survived and spread.
The solar finance industry runs its own version, without needing a divisional merger. The split happens in advance: your payment stream is bundled and sold into “bankruptcy-remote” securitization trusts long before any filing, so the valuable thing — your obligation to pay — sits safely behind a legal wall. What stays at the parent company are the obligations owed to you: warranties, service commitments, and liability for the sales practices that regulators have documented at scale. (In August 2024, the Consumer Financial Protection Bureau found solar loans routinely carry hidden “dealer fees” inflating principal 10–30% above cash price, and that solar finance marketing heavily targets older adults; that same year Minnesota’s Attorney General sued GoodLeap, Sunlight, Mosaic, and Dividend over concealed fees.) When the parent finally files, its remaining assets are sold “free and clear,” and consumers’ claims stay behind with the empty shell.
Forced arbitration is not a side detail in this playbook. It is the mechanism that makes each step work.
Step One: Arbitration Builds the Wall of Silence
Before a solar company ever nears bankruptcy, its arbitration clause is doing quiet, essential work.
Under Supreme Court precedent — AT&T Mobility LLC v. Concepcion (2011) and its successors — arbitration clauses with class action waivers are broadly enforceable, and courts must generally send consumers to individual arbitration even when the claims are small, similar, and widespread. For a solar lender whose sales channel is generating thousands of near-identical complaints — forged e-signatures, misrepresented tax credits, hidden fees — this is invaluable, for reasons that go beyond winning any single case.
Arbitration is confidential. There are no public dockets, no published decisions, no jury verdicts making headlines, no discovery shared between claimants. Each deceived homeowner fights alone, unaware of the thousands of others. Class waivers prevent aggregation, so the company’s true, industry-scale liability never appears in one place — not in a courtroom, not in a judgment, and critically, not plainly on a balance sheet where regulators, investors, and the public could see it. Misconduct that would have been exposed and priced by a few early class actions instead accumulates silently for years.
Many of these clauses are also one-sided in practice: the consumer must arbitrate her fraud claim, while collection of her payments proceeds through routine channels without any such constraint. The clause was never about the company preferring arbitration. It was about the company controlling the forum.
Step Two: Bankruptcy Flips the Table
Then comes the filing — and the forum-control strategy inverts overnight.
The moment a Chapter 11 petition hits the docket, the Bankruptcy Code’s automatic stay halts pending litigation and arbitration against the debtor. Homeowners who spent months and real money pursuing individual arbitrations — the only path the contract allowed — are stopped mid-stream. The arbitrator’s authority is suspended; an unfinished arbitration becomes just another unsecured claim.
Now the company that swore collective proceedings were unfair demands exactly that: every consumer claim, herded into one bankruptcy court, subject to one bar date. Miss the proof-of-claim deadline — which arrives quickly, and which many homeowners never meaningfully learn about — and the claim can be extinguished entirely. File on time, and the fraud claim that might have supported a meaningful arbitration award is now an unsecured claim against an estate whose valuable assets are already gone or leaving, typically recovering pennies or nothing.
Notice the symmetry with the Texas Two-Step. J&J spent years resisting aggregated proceedings, then sought a global, collective resolution in bankruptcy once collectivization served it. Solar lenders spent years enforcing individual arbitration, then embraced a single collective forum the moment individualized claims became a threat rather than a shield. In both cases, the injured never get the version of process that would actually help them: they are denied class actions when aggregation would give them leverage, and denied individual adjudication when individual claims would have value. The forum changes; the loser doesn’t.
Step Three: The Successor Keeps the Clause, Not the Liability
The final move may be the most audacious. The assets — including your contract — are sold “free and clear” to new owners: servicers, securitization trusts, successor brands. Ask the new owner to honor the warranty, or raise the original fraud when they collect, and the position is that those liabilities stayed behind in the bankruptcy.
But raise your claims in court, and watch what gets invoked: the arbitration clause from the very contract they bought. Successors and assignees routinely claim the benefits of the original agreement — above all, the payment stream and the arbitration clause with its class waiver — while disclaiming its burdens. Heads they win; tails you arbitrate, alone, against a party that says it owes you nothing.
Whether that asymmetry holds up is genuinely contested. Non-signatories’ ability to enforce arbitration clauses, and whether a buyer can simultaneously stand in the seller’s shoes for arbitration but not for liability, are live issues that courts resolve case by case. Which is precisely the point: it takes a lawyer to fight it, and the structure is designed so that few homeowners ever do.
What Homeowners Still Have
The picture is not hopeless — but every remaining protection rewards speed and punishes waiting.
The FTC Holder Rule notice printed in most consumer credit contracts generally preserves your claims and defenses against whoever holds the loan — including successors who bought it out of bankruptcy. Even where affirmative claims are impaired, raising the seller’s misconduct defensively, to reduce or defeat what you allegedly owe, often survives both the bankruptcy and the arbitration clause’s practical obstacles. Formation challenges — the forged or never-explained e-signature that plagues solar sales to elderly homeowners — go to whether you ever agreed to arbitrate at all. Coordinated “mass arbitration” has, in other industries, turned the companies’ chosen forum against them. And state attorneys general are bound by neither the arbitration clause nor, in the way private parties are, the bankruptcy — their enforcement actions continue.
If your solar company or lender has filed for bankruptcy, or a company you’ve never heard of is collecting your payments while disclaiming your warranty, the clock is already running: bar dates, sale objections, and statutes of limitation do not wait. An attorney experienced in consumer energy finance can determine who holds your contract, whether the arbitration clause binds you and against whom, and what deadlines are about to close.
The arbitration clause was sold to you as a fair, efficient forum. The bankruptcy was announced as an orderly process protecting customers. Each, alone, sounds almost reasonable. Together, they are a two-step — and the music is playing.
Energy Consumer Law Group represents homeowners in disputes involving solar loans, leases, and power purchase agreements. This article is for educational purposes only and is not legal advice. Every case is different; consult an attorney about your specific situation.
Sources
- Harvard Law Today, Expert explains how companies are using a controversial bankruptcy maneuver to handle mass tort claims (interview with Prof. Jared Ellias), https://hls.harvard.edu/today/expert-explains-how-companies-are-using-a-controversial-bankruptcy-maneuver-to-handle-mass-tort-claims/
- In re LTL Management, LLC, 64 F.4th 84 (3d Cir. 2023) (dismissing J&J subsidiary’s Chapter 11 for lack of financial distress)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (upholding class action waivers in consumer arbitration clauses under the Federal Arbitration Act)
- 11 U.S.C. § 362 (automatic stay); 16 C.F.R. § 433.2 (FTC Holder Rule)
- Consumer Financial Protection Bureau, Issue Spotlight: Solar Financing (Aug. 7, 2024), https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-solar-financing/
- pv magazine USA, Sunnova files for bankruptcy (June 10, 2025), https://pv-magazine-usa.com/2025/06/10/sunnova-files-for-bankruptcy/
- pv magazine USA, Residential solar loan provider Mosaic announces bankruptcy filing (June 9, 2025), https://pv-magazine-usa.com/2025/06/09/residential-solar-loan-provider-mosaic-announces-bankruptcy-filing/
- pv magazine USA, Minnesota sues GoodLeap, Sunlight, Mosaic and Dividend over dealer fees (Apr. 26, 2024), https://pv-magazine-usa.com/2024/04/26/minnesota-sues-goodleap-sunlight-mosaic-and-dividend-over-dealer-fees/
