The Impact of Automaker Bankruptcies on Injured People

With both the Chrysler and General Motors bankruptcies now approved, the companies were able to shed billions of dollars in debt and other liabilities. Included in this debt were the rightful legal claims of consumers who were injured by the automakers’ products. Those individuals hurt by GM and Chrysler vehicles before the companies entered bankruptcy will likely be able to recover only a small fraction of the compensation owed to them — a result that is both unfair and insulting to those who put their trust and money into these companies. To compound the injury, billions of taxpayer dollars were given to GM and Chrysler to make the bankruptcies possible.

Chrysler: Only “New Chrysler” Customers Need Apply

When the “new Chrysler” emerged from bankruptcy on June 10, 2009, the company received a very important gift from the bankruptcy court: no liability for any product liability claims stemming from vehicles manufactured by the automaker pre-bankruptcy.

This means that if a consumer bought a vehicle manufactured by the “old Chrysler” but was not injured until after the company completed the bankruptcy, the person will be unable to recover anything for their injuries from Chrysler.

Under the terms of the automaker’s bankruptcy, the new company only can be held liable for injuries stemming from vehicles manufactured by the new company. Any harm that is caused by vehicles manufactured by the old company, regardless of when the injury occurs, is not “new Chrysler’s” problem. The company was given a free pass to walk away from these claims because the bankruptcy court felt it was “unfair” to make the new company responsible for any injuries — no matter how severe — caused by products built and sold by the old company.

GM: Timing is Everything

After the news came out about the deal Chrysler was able to negotiate in its bankruptcy, the focus quickly turned to General Motors as concern grew that the auto giant would be granted similar limits on liability. Several State Attorneys General, consumer advocacy groups, tort lawyers and victims injured by defective GM vehicles spent three days explaining why allowing the company to limit its liability was unacceptable and unfair to the injured.

Partly due to increased public scrutiny, GM eventually agreed to fewer limits on liability than those granted to Chrysler. According to the terms of its bankruptcy, GM will accept liability for any injuries caused by GM products, so long as the injury occurs after the company emerged from bankruptcy, regardless of when the vehicle was purchased. A victim of a defective GM product now has a claim if he or she were injured on or after July 10, 2009, the closing date for the new GM, and if the claim arose from the motor vehicle’s operation or performance. However, just like the Chrysler bankruptcy, the new GM was relieved of its financial and legal obligation for any products liability claims existing against the company at the time it entered bankruptcy or before July 10. GM claims arising between June 1 and July 10, 2009 are in a middle ground and those claims may be handled by the bankruptcy court and possibly may receive some compensation but only to the extent that there are any assets left in old GM.

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