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The Curious Bag
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"Orderly bankruptcy" is the term used by the government when referring to the restructuring of the auto industry. Companies would file for Chapter 11 with the government providing necessary financing .
Bankruptcy Definition
According to the American Bar Association, bankruptcy is "a legal process through which people and businesses can obtain a fresh financial start when they are in such financial difficulty that they can not repay their debts as agreed." Chapter 11 of the United States Bankruptcy Code handles businesses.
A Special Plan
Auto makers felt the stigma of filing for Chapter 11 would cause the loss of customers, hampering the company's reorganization. But with government backing, consumers appeared to be more willing to risk a purchase.
Suppliers
A major concern was that unpaid suppliers would fail, leaving even solvent auto companies without necessary components to continue production.
Government Backing
Banks are usually quick to offer loans to companies emerging from Chapter 11 proceedings, but in this case they were not willing to take the risk. Government agreed to provide the financing.
Other Effects
Experts agree the only way for auto companies to truly resolve problems is by re-working union contracts. With the company in bankruptcy, the union can be forced into negotiations.
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