Bankruptcy Indiana

Just yesterday I blogged about CIT Group and its struggle to avoid corporate bankruptcy.  Meanwhile, one of the biggest companies in U.S. history to declare bankruptcy, General Motors Corporation, has turned out to be one of the fastest ever to emerge from the bankruptcy process.

While over the almost twenty five years I've been practicing bankruptcy law in Indiana, my clients have consisted of individuals and small business owners, not mega-corporations, in these Indiana bankruptcy blogs, I often use big corporate bankruptcy cases to illustrate the way in which the legal process of bankruptcy functions.

By way of review, in contrast to individual bankruptcy, in a business bankruptcy the court does not have the power to discharge debts.  Instead, all available company assets are sold to satisfy creditors.  The purpose of the corporate bankruptcy filing might be to help the company fairly repay its creditors, or it might be to buy time for it to find a buyer (which might be an investor group or another company).
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Monday, June 1 of 2009 was the day on which GM officially filed Chapter 11 bankruptcy.  President Obama said in a speech delivered that day that "he saw no option other than bankruptcy to fix the company's bloated cost structure".  According to a New York Times write-up, the White House and GM hoped "a speedy trip through bankruptcy, in 90 days or fewer, will limit further damage to the company, its employees, dealers and suppliers". Then, not six weeks later, at the beginning of July, GM officially emerged from bankruptcy and became "the new GM".

While I have handled tens of thousands of Indiana bankruptcy client cases, I must point out that the GM bankruptcy is not at all a typical case, even when compared to the largest corporate bankruptcies our country has seen.  The "new GM" emerged with 60% government ownership, with the remainder of the stock split among United Auto Workers' union healthcare trust, GM bondholders, and the Canadian government.

What did hold true for GM is the general principle behind bankruptcy in general, which is to offer debtors (whether individual or corporate) a fresh financial start. Even though, as I mentioned earlier, the court did not "discharge" debt the way it might have in an individual bankruptcy proceeding, the end result of GM's bankruptcy process is that it has, in the words of the New York Times, "permanently unshackled itself from the cost of supporting thousands of retirees and the debt held by investors."