In the midst of the recession, the U.S. Government came to the aid of automakers General Motors and Chrysler. The government bought large stakes in both companies, essentially bailing them out and saving them from financial ruin. The intent was to save thousands of American jobs while maintaining two traditional titans of the auto industry.
However, the bailouts had unintended consequences. Specifically, hundreds of judgments owed to those injured by defective products were wiped away. According to a Wall Street Journal report, the U.S. Treasury paid off a majority of Chrysler's loans, while bank debts owed by GM were fully repaid. However, thousands of dealers, asbestos victims and other creditors received little to no compensation.
Despite jury verdicts in the plaintiff's favor, GM and Chrysler will not be obligated to pay the judgments lodged against them. Unlike bond holders and banks, car accident victims did not extend credit or provide loans to the automakers. Because of this, they became creditors only after they had been injured and were not necessarily a priority for compensation. The bankruptcy judges who oversaw each company's restructuring plan cited legal precedent for the ability to have each company sold free and clear of judgments and lawsuits.
Meanwhile, programbusiness.com reports that more than 2,500 lawsuits totaling $3.3 billion have been asserted against Motors Liquidation Co., the formal name for GM's bankruptcy estate. Nearly all of these claims stem from product-liability lawsuits. Plaintiffs have been negotiating with Motors Liquidation lawyers to recover what they can, which has commonly amounted to 30 cents on the dollar in the form of shares and warrants from an unsecured creditors' trust that received 10 percent of new GM stock.
Judges will still have to decide if future products liability lawsuits survive the sale of a business through bankruptcy proceedings. If you have a legal claim against a company that has filed for bankruptcy protection, an attorney can advise you of your rights and options.
