The Chrysler and General Motors bankruptcies have raised questions about whether standard consumer protections will apply to the companies’ cars sold during or even before the bankruptcy.

With GM filing for bankruptcy last week, “We’re fighting the Chrysler bankruptcy again,” says consumer advocate Clarence Ditlow, executive director of the Center for Auto Safety (CAS) and Consumers Union board member.

CAS, along with other consumer groups’ and individual plaintiffs’ attorneys, appealed the judge’s ruling approving the Chrysler sale, stating that consumers with lemon law, personal injury, and other product defect cases were being left out of the settlement. (Read: "Chrysler bankruptcy leaves injured consumers without recourse.")

During bankruptcy, payments to creditors are frozen by the court and only paid by court order. But these types of consumer problems came to the surface when some people who had settled lemon-law claims had their settlement checks bounce. (Read: "Chrysler bankruptcy affecting lemon-law payments."

Since then, Chrysler said it would reissue checks and the bankruptcy court reinstated some, but not all, lemon-law protections. But it did not provide recourse for consumers who currently own Chrysler vehicles to make claims against the company for product defects or other injuries that may arise, says Ditlow. These may include claims against the automaker from consumers injured in accidents in Chrysler vehicles and those included in class-action suits involving defective engines, for example.

Consumers with lemon-law claims against Chrysler are still entitled to get their money back for their cars, as well as reasonable reimbursement for legal fees. Some remedies covered in some state lemon laws, such as coverage for a rental car, and damages for an automaker dragging claims out were expressly overruled. And only cars that have been on the road less than five years are eligible for lemon-law claims. 

Lemon-law claims generally come into play while a car is under warranty, if several unsuccessful attempts have been made to repair the car. “Without full lemon-law protection, your warranty is pretty worthless.  You can end up going back over and over again for repairs that fail to fix your car,” says Rosemary Shahan, president of Consumers for Auto Safety and Reliability (CARS) in Sacramento, Calif.

The consumer group claims for buyer protection were rejected on appeal last week in New York bankruptcy court and have been filed with Supreme Court. The U.S. Supreme Court yesterday issued a stay on Chrysler proceedings to allow time to review outstanding claims.

Ditlow says the GM bankruptcy is creating similar problems as his group saw with the Chrysler situation. “The starting point seems to be the same for both companies; they clearly want to get rid of these liability claims.”

Consumers Union has written to the Administration’s Auto Task Force asking that they take steps to ensure that such claims are protected through the restructuring process.

GM itself seems to confirm that consumer liability claims will be addressed, along with other outstanding debts owed by the old GM. “In general, product liability claims related to vehicles sold prior to the closing date of the proposed section 363 sale will stay with the current GM, and such claims will be resolved on a proportionate basis as other general unsecured claims,” says Greg Martin, director of policy and Washington communications at GM. This means that when the new GM emerges from bankruptcy, these types of claims will be left behind with the old GM, which will continue in bankruptcy.

While we don’t know the ultimate outcome of either case, consumers considering buying a car from these companies should be aware these underlying consumer protections may not apply to cars bought before the restructured automakers emerge from bankruptcy.

To get answers to the most common questions and concerns about Chrysler’s and GM’s bankruptcy, check out our Auto Crisis hub. And follow the latest happenings in our Cars blog.

—Eric Evarts