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GM to Defend Bankruptcy Shield in Court

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Feb. 17, 2015—General Motors is in court, fighting to maintain a bankruptcy shield blocking legal claims from customers seeking compensation for declining resale values and injuries stemming from a defective ignition switch, according to a report from The Wall Street Journal.

The switch is believed to have caused at least 56 deaths, and is said to have arisen from a “pattern of incompetence and neglect,” according to the automaker.

Plaintiffs are seeking billions of dollars in damages in the suit, but GM also finds itself in this position due to a concession it made five years ago in order to expedite its emergence from bankruptcy proceedings. The automaker is in U.S. Bankruptcy Judge Robert Gerber ’s Manhattan courtroom because that deal weakened the same bankruptcy shield that GM is now trying to keep.

Judge Gerber presided over GM’s government-backed restructuring and is revisiting details of the past case to decide whether plaintiffs can sue for losses associated with vehicles made before the company’s restructuring. The plaintiffs want GM stripped of its bankruptcy shield.

It has been found that GM failed to recall vehicles equipped with switches prone to jostling out of the run position and cutting power to airbags and other safety features for more than a decade.

The bankruptcy shield is said to protect GM from liabilities related to other consumers claiming that millions of vehicle recalls have dented the value of their GM models. It also blocks lawsuits from other wrongful-death and personal-injury claimants tied to accidents that occurred before GM’s government-brokered bankruptcy sale.

If the shield is ruled to be left alone, those customers will be left to seek damages from an unsecured creditors trust at the company’s bankruptcy estate.

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