Bankruptcy attorney Reed Allmand spoke about bankruptcy this week on the Fox News show, “Money For Breakfast.” The question posed to interviewees was “Is Bankruptcy the easy way out for businesses?” Mr. Allmand pointed out that although many businesses absolutely need bankruptcy to regain profitability, there are some businesses, such as GM, who have filed bankruptcy and crammed down debt owed to their creditors; but stood in the way of individual debtors who wanted to do the same thing.
GM has benefited greatly from its bankruptcy by renegotiating agreements with creditors and employees; but GM was one of the primary detractors of the mortgage modification bill that would have allowed debtors to modify their toxic mortgages in bankruptcy.
Now, the American taxpayer, many of them struggling financially, facing foreclosure and considering bankruptcy, are forced to foot the bill of GM’s financial troubles and become part owners of this automaker, the same automaker that refused to allow taxpayers the benefits of bankruptcy that it now enjoys. Not only that, but employees that GM has laid off or will layoff won’t have the right to renegotiate their mortgage in bankruptcy because of GM and other companies like them.
Mr. Allmand also pointed out some of the pitfalls for competitors of companies that file bankruptcy. If a company files bankruptcy and emerges profitable, they may have a significant advantage over their competition because of reduced debt and labor costs. In the case of companies that have filed bankruptcy, they may be at risk for “reduced consumer trust.”
This reduction of consumer trust may not affect a company such as a retailer that sells clothes like Eddie Bauer. On the other hand, a company such as GM may risk customers becoming cautious about buying an automobile from a company in bankruptcy. It’s important that companies remind consumers that they are still financially healthy and that they will continue to operate normally despite bankruptcy.