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Lawsuits stayed by automaker bankruptcies, consumer rights swept away

In the wake of Chapter 11 bankruptcies of Chrysler and GM, consumers are left to face a tidal wave that has began to sweep away their fundamental rights, such as the right to return a lemon or get compensation for injuries and deaths caused by automobile defects. 

“What needs to be done is not to stop the restructuring of GM and Chrysler, but to stop treating consumers as if they were collateral damage,” said Clarence Ditlow, Executive Director of the Center for Auto Safety in Washington, DC.

A Chapter 11 filing shields a company from creditors' demands for payments and stays lawsuits while it restructures its finances. 

Bankruptcy serves a purpose, but I don’t believe it is for businesses to avoid liability for their products,” said Jeremy Warriner, 34 of Indianapolis who lost both of his legs due to a defective Chrysler vehicle.

But consumers aren’t the only ones upset with the bankruptcies.  Safety advocates who long fought and finally changed NHTSA’s roof crush resistance standard, known as FMVSS Rule 216 last month, which included among other safety enhancements, removal of preemption language from lawsuits, are now back to square one.  

“Come hell or high water, they’re getting their preemption,” said Paula Lawlor, Founder of People Safe in Rollovers, a non-profit organization on roof crush, which has been at the forefront of enhancing the roof strength standards.

The automakers have issued notices of bankruptcy in all pending lawsuits against them citing the automatic stay provision of Section 362 of the Bankruptcy Code, which essentially makes all consumer litigation claims worthless.

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