Why Must I Continue to Make Payments on My GM Car Loan?

Why Must I Continue to Make Payments on My GM Car Loan?

Why do I have to keep making my car payments to GM? What is my GM stock worth?

Since GM filed for bankruptcy and got a bailout, does that mean I don't need to continue to make payments on my GM car loan? If so, why? Also, I own 500 shares in GM stock. Is that really worthless now?

I have bad news and bad news. Your stock is worthless and you must keep making payments for your GM vehicle.

In a bankruptcy, the secured creditors are paid first. These are creditors who have loans tied to a certain piece of equipment or real estate. Next in line are unsecured creditors, such as suppliers, banks, and bond holders. Last in line, as I mentioned, are the owners of the company -- the stock holders. Typically, by the time a corporation's assets are liquidated and the creditors are paid, there is little or nothing left over for the stock holders.

Here, GM filed for Chapter 11 bankruptcy. Chapter 11 allows a corporation to restructure and rehabilitate its business and create a plan the court (and creditors) believe will return the corporation to profitability. In this case, GM created what is known as a "prepackaged bankruptcy plan." A prepackaged reorganization plan is created in advance of the filing, and is agreed to in advance by the creditors. See the SEC Web site for more information on corporate bankruptcy

The "new" GM purchased substantially all of the "old" GM's assets. If GM itself made vehicle loans, then presumably the new GM bought these loans because they are a valuable and profitable asset. (See the White House fact sheet on the GM restructuring for particulars.) However, if a vehicle was financed by GMAC, which started as GM's finance subsidiary in 1919, then it is, for all intents and purposes unaffected by GM's bankruptcy because GMAC is a separate legal entity.

If you received financing from another organization, such as your bank or credit union, then your payments must continue until you refinance the loan, pay off the loan, or sell the vehicle.

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