GM and Chrysler Accident Victims May Be Denied Recovery After Bankruptcy

Hundreds of consumers may lose their ability to collect on product liability and personal injury lawsuits against General Motors and Chrysler involving incidents that occurred before their bankruptcy and reorganization, which will wash away many old debts and responsibilities.

On June 24, a group of creditors filed an objection in the GM bankruptcy and restructuring deal, saying that the new GM must accept the old company’s responsibilities for vehicle defects, asbestos lawsuits and other legal claims. The objection came after Chrysler was granted product liability immunity in the terms of its sale to Italy’s Fiat on June 10.

Estimates have placed pending lawsuits against the two automakers at a worth of nearly $2 billion. Most of those cases deal with GM and Chrysler product liability lawsuits, but legal experts say that once the bankruptcy and reorganizations are complete, those liability suits could be uncollectable against the new companies. Additionally, the ability to collect any judgment against the old company will rank low as a payment priority in bankruptcy court, meaning victims would be unlikely to ever secure compensation.

Open lawsuits against GM and Chrysler are considered unsecured creditors and get relegated to the back of the line when it comes to divvying up the companies’ assets. Even secured creditors, like pension funds for retired workers, have found themselves being left out in the cold. The Supreme Court allowed the Chrysler bankruptcy to go through despite appeals by the state of Indiana that the company was discarding its obligations to pension funds in the process.

If there is nothing left for secured creditors, it is almost a certainty that there will be no money for unsettled injury lawsuits over vehicle defects and other problems caused by the negligence of the old company.

General Motors has already asked U.S. Bankruptcy Judge Robert Gerber for the immunity, and the objection filed by the Official Committee of Unsecured Creditors is asking the court to deny that motion. The issue will be considered at a hearing next Thursday.

If GM is granted the immunity, some personal injury attorneys say they will argue for “successor liability” in court against GM, hoping that product liability lawsuits will get passed on by court order to the new company anyway. However, legal experts say it will be a hard sell if plaintiffs cannot get the U.S. treasury to intervene.

Under the terms of the bankruptcy, the new GM and Chrysler will still have to honor existing warranties on vehicles.