In response to the car maker’s GM and Chrysler’s statement made earlier this year that consumers will not buy cars from a bankrupt company for fear of getting worthless car warranties, the rationale espoused by the big 3 to justify bail out funds from Uncle Sam in lieu of filing for bankruptcy relief, President Obama said on Monday that all warranties issued by bail out recipients GM and Chrysler will be guaranteed by the full faith and trust of the U.S. government. In the same breath, the President showed the door to the CEO of GM to be replaced by his appointee, and said that Chrysler had 30 days to reach a joint venture deal with Italy’s Fiat, or face a certain death.
"Your warranty will be safe, in fact, it will be safer than it’s ever been, because starting today, the United States government will stand behind your warranty." Further, the President said that as a last resort, instead of being the beneficiary of an endless stream of bail out funds to enable the BIG 2 to continue operating, they may be required to file for bankruptcy reorganization. This is the first time since the BIG 2 started receiving billions of bail out funds late last year that the prospect of bankruptcy has been mentioned by the government as a tool of last resort to ensure that the BIG 2 will survive.
The President envisions a prepackaged government led bankruptcy for the BIG 2 to force creditors, employees and other parties who have claims on the carmakers, to reduce their payment demands against the carmakers to such an extent that the cash flow of the BIG 2 can easily handle. The prepackaged bankruptcy plan may indeed require unsecured creditors to give up a big chunk of their claims. It is not unusual to have unsecured creditors receive 10 cents to a dollar or even nothing in a Chapter 11 reorganization. Bankruptcy law gives bankruptcy judges the power to reduce or even invalidate loans and contracts of debtors if they believe that the Chapter 11 business plan submitted is feasible. Faced with the possibility of having their claims reduced to nothing in bankruptcy court, creditors and employees and other claimants may be forced by the threat of bankruptcy to give significant concessions to the BIG 2 to dissuade the government from leading GM and Chrysler into bankruptcy court where they may end up with nothing. Bankruptcy judges can invalidate warranties but the President has given his oral guaranty of the warranties to convince consumers to continue buying GM and Chrysler cars. I would suggest that you wait for this guaranty to be put in writing first because as any freshman law student knows only written guaranties are valid and enforceable. Aside from invalidating creditor and employee claims, the government expects bankruptcy law to allow the BIG 2 to shed off bad assets while allowing the sale of good assets to generate cash.
With this announcement, it may be closer to certainty that the BIG 2 will be seeking Chapter 11 bankruptcy reorganization. This is a good thing. It is a lot cheaper for taxpayers to have the BIG 2 face the scalpel of a bankruptcy judge to carve them into leaner and profitable entities. Compare this to providing an endless stream of cash to allow them to continue operating forever at a loss. The cost of continued bail out of these 2 losers may even be more than the 2 wars we are currently fighting in the Middle East.
If you have too much accumulated debt that you can no longer handle, seriously consider to get rid of your debt with a chapter 7 bankruptcy petition if you qualify. If bankruptcy will be used as a weapon to save the BIG 2 to ensure that they survive, bankruptcy will also be good for you so you can have a fresh start in life without accumulated debt.
Contact my office; I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published on April 4, 2009 in Asian Journal Los Angeles p. C4 )
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