Published by Mark

Chapter 11 Bankruptcy Is A Start, Not An End, For Chrysler

May 13, 2009 at 7:40 pm

The Associated Press reporter’s opening line in a recent article about Chrysler Corporation’s Chapter 11 bankruptcy filing could be a banner capturing the essence of the bankruptcy process:

“The first sound of the gavel in Chrysler’s bankruptcy might as well be the bang of a starter’s pistol.”

In all my Indiana bankruptcy blog posts, I keep stressing that bankruptcy is a process, not an event.

– The most important part of the process is the rebuilding, as individuals or corporations
emerge from bankruptcy

– Even though personal bankruptcies are not referred to as “reorganizations”,the
essence of the bankruptcy process is to help individuals and companies
reorganize theirlives and take advantage of the opportunity to make a fresh start.

In fact, Chrysler has filed Chapter 11 with the intention of emerging from the bankruptcy in a short a time as one month as “a leaner, more nimble company” by building “cleaner cars” in alliance with Fiat. The federal government has offered to back Chrysler warranties in addition to giving the company more financial aid.

I need to explain once again that my own Indiana bankruptcy law practice involves individuals and small businesses, not multi-national corporations such as GM or Chrysler. However, I take a very strong interest in corporate bankruptcies that are in the news, and use them to demonstrate how the U.S. bankruptcy system of law works. I also need to point out that the Chrysler situation is hardly typical, even among large corporate restructurings, because of the high level of government involvement in the process.

Meanwhile, at least as of this posting, GM is happy to avoid bankruptcy by gaining concessions from creditors. GM’s story demonstrates an important element of the bankruptcy process as well. There are different “stakeholders” in every bankruptcy, meaning different parties that each have an interest in the outcome of the case.
With GM there are the taxpayers (because of all the government subsidies GM’s received), the bondholders (who loaned money to the company), shareholders (who invested in GM), employees (whose jobs and benefits are tied to the company), retirees and their families (who depend on pension and health benefits from GM). The goal of bankruptcy is to treat all the parties as fairly as possible.

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