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Judge blocks consumer claims existing prior to bankruptcy

Businesses in the United States, even traditionally profitable companies, may fall on financial hardships from time to time. There are various options available to such a business, but if their debt burden is too significant, they may consider bankruptcy. It is important for the business, and its creditors, to understand the consequences of such an action.

A group of plaintiffs attempting to bring legal action against General Motors for injuries caused by a faulty ignition switch have had their potential claims limited by a federal bankruptcy judge in New York. The plaintiffs are alleging that the ignition switch on certain vehicles unexpectedly turns from run to off, resulting in an inability to control the vehicle while it is moving. Pursuant to General Motors' entry into Chapter 11 bankruptcy, the judge has ruled that they may only bring actions that result from issues based on their post-bankruptcy conduct. Essentially, any claims that arose prior to the bankruptcy proceedings are barred. The plaintiffs claim that General Motors knew of the defect years before it was used in passenger vehicles, and have been installing the switch in different models for over a decade.

As stated above, General Motors filed for Chapter 11 bankruptcy. This form of bankruptcy is intended for businesses to reorganize their debts and determine a plan to become profitable after bankruptcy, while creditors are forced to await the outcome of the plan. Once the bankruptcy action is filed, creditors are prevented from pursuing current debts or attempting to collect new debts. The business develops a repayment and reorganization plan that classifies creditors based on priority of payment. If the court confirms the plan, they must repay creditors according to its terms, and any debts that existed at the time of bankruptcy, but were not listed in the plan, are discharged by the court.

Bankruptcy is a viable debt relief option for individuals and businesses under the right circumstances. A business that has significant liabilities may pursue such an action to return to profitability.

Source: Madison Record, "New York bankruptcy judge limits claims brought against GM over ignition switch," Heather Isringhausen Gvillo, Aug. 4, 2015

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