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Government Bail-Out Leaves Victims Behind

When the government used approximately $24.9 billion to bail-out two of the Big 3 auto companies, the purpose of the loans was to maintain the availability of auto loans to car buyers, as well as provide operating cash for GM and Chrysler.  However the near-bankruptcy bailout also allowed for the companies to restructure and discharge legal responsibility for car accident victims who had won damages or pending law suits before filing for bankruptcy.

In coming to the aid of General Motors Co., and Chrysler, the bailout caused a major rift between automakers and car accident victims by choosing one at the expense of the other.

“The government was deciding who was going to be taken care of and who was not,” explains David Skeel, a University of Pennsylvania law school professor and bankruptcy expert who has testified before Congress on the auto bailouts. Even if the auto makers had legal rights to leave behind product-liability claims, “there is a deep unfairness. It would have been easy enough to set something aside for them.”

Chrysler and GM were insolvent and “came to the taxpayer and asked for help,” says Ron Bloom, the president’s chief adviser on manufacturing policy and a member of the auto task force.  But once the bailout was approved, the creditors that suffer the most are the car accident victims who did not chose to extend credit to the auto makers.  These victims became creditors as consumers by suffering injuries in vehicles they purchased.

According to U.S. Bankruptcy Judge Robert Gerber, the bankruptcy code’s intent and current legal stance is mixed and inconclusive.  After protests from several state attorney generals, both GM and Chrysler agreed to remain exposed to car accident lawsuits that occurred after bankruptcy, regardless of when the vehicles were purchased.  But for the cases pending or cases already won, will struggle to recover much less.  Car accident plaintiffs from before the bankruptcy declaration have been bargaining with Motors Liquidation Co., GM’s bankruptcy estate, to get whatever they can, “often 30 cents on the dollar in the form of shares and warrants from an unsecured creditors’ trust that received 10% of new GM stock.”  Others have decided to settle outside of the courtroom, while the rest refused to accept the terms with hopes to recover more at trial.

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