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Takata bankruptcy may affect air bag recall

Most people driving in California take for granted that their vehicles will keep them safe while in use. Should some sort of manufacturing error manifest itself, making the vehicles unsafe, a recall will be issued to fix the defect. However, as one instance shows, a company's legal obligations when it comes to recalls can be affected by a bankruptcy filing.

The bankruptcy of Takata Corp. has thrown a wrench into what is one of the all-time biggest auto recalls. California residents may remember that Takata manufactured faulty air bags, the defects of which lead to 17 deaths. The airbags would explode when deployed, sending shrapnel at occupants of the vehicles.

An auto parts company that files for bankruptcy in the U.S. still must continue with any existing recalls. That being said, if the bankrupt company's assets be depleted, it may fall on auto manufacturers to finish the job. Per U.S. bankruptcy laws, Takata's assets could be purchased, but the buyer need not assume Takata's liabilities, such as its duty to recall the defective airbags. However, recalls are considered priority claims in bankruptcy.

One professional estimates that Takata will be able to sell its assets for a combined total of $1.5 to $2 billion. However, this will not be enough to cover the company's recall obligations. Around 100 million defective inflators need to be fixed across the world. However, the National Highway Traffic Safety Administration reports that as of May 26, only about 38 percent of the Takata air bag inflators in the U.S. have been fixed.

Those who are pursuing legal action with regards to auto recalls may want to contact their attorneys to see how bankruptcy affects their lawsuit. With cases as complex as this one, it is best to speak to a professional, so that you can understand what options are available.

Source: Bloomberg, "Takata Bankruptcy Would Cloud Auto Industry's Biggest Recall," Kevin Buckland, Masatsugu Horie and Ryan Beene, June 23, 2017

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