Some Good News in GM Bankruptcy

It appears that some individuals and families injured by defects in the 74 million GM vehicles currently on the road will be able to pursue their claims against GM after it emerges from bankruptcy, reports the New York Times. Since the Chrysler bankruptcy--which reached the opposite result--the issue has been a serious concern to states attorneys general, victims of defective GM products, and consumer groups.

In Chapter 11 bankruptcy, a company is able to discharge its debts to permit reorganization. When such a filing is necessary, a company is generally teetering on the edge of financial ruin, and owes several entities and individuals money--these are its creditors. Among the creditors of a bankrupt automobile manufacturer are individuals and families injured by the manufacturer's products, because each likely has the right to compensation for personal injury or wrongful death.

There is much gray area in the law in determining how and if the claims of injury and death can be pursued against a company after Chapter 11 reorganization. In the Chrysler bankruptcy, the court decided to discharge all debt created by vehicles sold before the company re-emerged from bankruptcy. This means that for any injury caused by a Chrysler vehicle sold before June 10, 2009 (the closing date of the bankruptcy proceeding), the plaintiff must sue the old Chrysler company (now called "Old CarCo."). The obvious problem is that this the same company that collapsed financially, making any monetary recovery unlikely.

With the GM bankruptcy, the parties will recommend to the court that it partially keep the new GM financially responsible for the 74 million vehicles built by its pre-bankruptcy predecessor. I say "partial" because those plaintiffs with prior injuries who have already filed their lawsuit will likely be forced to pursue their claim against the old, financially ruined GM. Fortunately, individuals and familes who suffer future injuries caused by old GM vehicles will still be able to seek compensation from the new GM entity.