The Freshest Start Of All

General Motors intends to take its ignition switch liability argument all the way to the Supreme Court.

Earlier, the Second Circuit Court of Appeals in New York ruled that the automaker is still responsible for damages stemming from defective ignition switches, even though the company declared bankruptcy in 2009 and emerged a short time later. The company’s lawyers have consistently argued that while the “old GM” was clearly responsible for damages in these cases, the “new GM” is an entirely new corporate entity and the Bankruptcy Code guarantees the company a fresh start free from its prior liabilities. Indeed, a district court judge initially agreed with GM and ruled that the new company was not liable for damages.

The automaker recalled over 2.6 million vehicles that were linked to 124 deaths.

Back to the Starting Line

GM’s arguments have some merit, because the Bankruptcy Code guarantees a “fresh start” to the “honest but unfortunate” debtor; the real question in the GM case is just how honest the automaker was in the faulty ignition switch row.

The automatic stay is part of the fresh start, and it essentially allows debtors to legally ignore their debts. Moneylenders cannot take any adverse action against debtors as long as the automatic stay is in effect, and that includes repossession, foreclosure, wage garnishment, harassing phone calls, and any “easy payment plans” the moneylender may have imposed. While the bankruptcy judge has almost unlimited power to forgive debts, the power ends there. So, bankruptcy extinguishes debts but not security agreements, and if the debtor stops making payments on a house or car or whatever, the judge almost always allows the moneylender to enforce their liens. Similarly, bankruptcy cannot extinguish the collateral consequences of debt, like income tax liens.

The discharge order completes the fresh start. It is illegal for any moneylender or debt-buyer to attempt to collect a debt that was discharged in bankruptcy.

Strong to the Finish

A bankruptcy lawyer gets you back to the starting line, and the next move is up to you. That being said, there are many things you can do to help rebuild your credit after bankruptcy.

It may seem counterintuitive to tell people with prior debt problems to obtain a credit card, but the responsible use of credit is the only way to rehabilitate a credit score. Most debtors receive many such offers after they receive their discharge orders, because the moneylenders know that a waiting period applies and it will be several years before the former bankruptcy debtor can file another voluntary petition. It’s usually best to select a card with a relatively low credit limit that can be increased later; some people automatically gravitate to secured cards, but many of these issuers put a “secured card” note on credit reports, and that note diminishes the impact of on-time payments.

Speaking of on-time payments, secured debts must be paid on time, because these creditors report payment history directly to the credit bureaus. Other bills, like utility bills and car insurance payments, are not reported regularly, but unpaid accounts typically go to debt-buyers.

Count On Experienced Lawyers

To get the fresh start you and your family deserve, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC for a free consultation. Convenient payment plans are available.

Resources:

law.cornell.edu/uscode/text/11/362

reuters.com/article/us-usa-court-gm-idUSKBN1422VN