Attorney Sergei Lemberg: Impact of GM Bankruptcy on Car Owners Overlooked

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As the U.S. Congress contemplates a $25 billion rescue package for the embattled U.S. car industry, some analysts are advocating a structured bankruptcy for General Motors. Sergei Lemberg (LemonJustice.com), a former bankruptcy lawyer who now represents consumers in warranty and lemon law cases, today urged both sides to consider the impact that a bankruptcy would have on GM car owners.

While much has been written and broadcast about the ripple effect that a Big Three bankruptcy would have on the economy, many consumers have more pressing questions

As the U.S. Congress contemplates a $25 billion rescue package for the embattled U.S. car industry, some analysts are advocating a structured bankruptcy for General Motors. Sergei Lemberg (LemonJustice.com), a former bankruptcy lawyer who now represents consumers in warranty and lemon law cases, today urged both sides to consider the impact that a bankruptcy would have on GM car owners. "While much has been written and broadcast about the ripple effect that a Big Three bankruptcy would have on the economy, many consumers have more pressing questions," Lemberg noted. "People are wondering if their car warranties will remain intact and whether they'll still have lemon law rights if GM goes under."

Lemberg says that warranty agreements are called "executory contracts" in bankruptcy, and whether or not warranties remain in effect would largely depend upon whether a bankrupt automaker reorganized or liquidated. "While the car manufacturer legally has the choice whether or not to keep its warranty obligations, the most likely scenario is that it will want to rebuild its business - which means keeping customers happy and fulfilling warranties," said Lemberg. "However, if it decides to liquidate and go out of business under Chapter 7, all bets are off," he added.

When it comes to claims filed under state lemon law, Lemberg notes that consumers may well be left out in the cold. "All lawsuits, including lemon law actions, stop with the bankruptcy filing," he said. "This automatic stay would even apply to lemon law arbitrations administered by state Attorneys General." Moreover, he says, all claims would be administered through the bankruptcy process.

Lemberg indicates, however, that there is one source of hope for lemon owners - Section 362(b)(4) of the Bankruptcy Code, which provides an exception for so-called "police powers" actions against a debtor. "It's possible that lemon law cases could fall under this exception, since the argument could be made that lemon law legislation is intended to police wrongful or unfair conduct by auto manufacturers," Lemberg said. "However, the police powers exception normally applies to the government, not private actions by individuals."

Lemberg concluded that, while some analysts view bankruptcy as the only road to relief for GM - which, according to Lemberg, has a bloated number of brands and dealers, as well as astronomical retiree costs, - the impact on GM customers should be considered. "In these tough economic times, consumers need to know that their warranties are valid and that they have recourse if they discover they've purchased a lemon."

About Lemberg & Associates, LLC:
The attorneys at Lemberg & Associates, LLC are experts in warranty and lemon law, and practice in New York, Connecticut, New Jersey, Massachusetts, Pennsylvania, Maryland, California, and Washington, D.C. Sergei Lemberg can brief you about the potential effects of automaker bankruptcy on consumers, state Lemon Laws, and other protections afforded car owners.

For more information, contact:
Sergei Lemberg
Lemberg & Associates, LLC
LemonJustice.com
203.653.2250

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