US Economy - The case for Chapt. 11 bankruptcy for car makers - by Kathleen Pender
Auto executives have painted a dire picture for their companies and the economy if they are denied $25 billion in federal loans and forced into bankruptcy.Yet many legal experts say that Chapter 11 bankruptcy, which lets a company restructure its operations and shed or rework many of its contractual obligations, is the best option for the automakers and for taxpayers if federal money is involved.Instead of lending to the Big Three car makers outside of bankruptcy, where the government would have little control and a low priority claim on the companies' assets, it would be better to let them file Chapter 11 and then provide debtor-in-possession financing.
DIP financing helps companies restructure their business and emerge from bankruptcy. It is usually senior to other debt and comes with a lot of strings attached. It would give the government a much higher claim on the companies' assets and more control over how taxpayer money is spent.
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