Takata Airbag Bankruptcy – Meyer Law, P.C.

Jul 26, 2017 | Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Credit

Takata Airbag Bankruptcy

Have you ever been in a serious car accident?

What’s better than your face and body slamming into your windshield and steering wheel?

What’s better than a thin,  polymer-fabric belt separating you from crushing glass, plastic, and steel?

How about an exploding bag of air?

Wouldn’t a pleasant, gently inflated bag of air be a much nicer way to land your body after sudden impact? After all, when you lie down in your bed, you don’t plunge in face-first at 70 miles per hour. Instead, you gently place your body-weight against the pillowy fabric and stuffing contained inside your mattress.

But your airbag must explode. It can’t just inflate like a mouth-blown beachball on a warm day in Encinitas.

When you get into that collision, your car stops, but you don’t. So at whatever speed you are travelling you’ll continue to do so at roughly the same rate until something stops you, like your  seatbelt and/ or your airbag (ever heard of inertia?). Consequently your airbag bust explode and inflate as quickly as possible so that your body isn’t striking a limp bag of plastic in the fraction of a second it takes for your body to reach the hard obstructions in front of it.

What Happens When Your Lifesaver Turns Deadly?

It has been widely reported that airbag manufacturer Takata has caused more than 100 injuries and at least 16 deaths. Picture being in a car accident, one of the worst experiences you could ever fance, and within an instant the thing that is supposed to save your life explodes out shrapnel, cutting your face and your chest. If you’re one of the really unlucky ones, that shrapnel turns deadly, and you neither survive the car accident nor the airbag, your “protector.”

Let’s back up a bit. We’ve all heard how thousands of lives have been saved by airbags since the 1980s. So an airbag turning deadly seems unheard of. In order to understand how an airbag turns from lifesaver to lifetaker, let’s look at how an airbag is supposed to work.

The easiest way to understand how an airbag works is to look at what it does when you are in an accident. We will take this step-by-step.

When you run into something, your car rapidly decelerates. The airbag senses this rapid slowing of your vehicle and immediately goes into action. And by the way, this deceleration has to be very fast – much faster than your brakes are capable of producing. This is why you never accidentally set off your airbag when you slam on your brakes.

Now that your airbag is activated, it rapidly takes the next step. An electrical circuit sends power through a heating element. This heating element quickly ignites a solid explosive, not unlike what was used in the rocket boosters of the old space shuttle. This burns almost instantaneously, producing an inert gas like nitrogen.

The explosion of gas does two things at basically the same time. One, it pops the cover off of the airbag. Usually this cover is the center of your steering wheel or the middle of your dashboard, unless we are talking about side curtain airbags or airbags placed in other parts of your vehicle. Two, it rapidly inflates the bag of air that will soon be in place to stop your face and body from impacting the front interior parts of your vehicle.

The remarkable thing is that it does all of this in less than 1/10 of a second. But when you think about it, if it wasn’t so fast, what good would it be?

There are two more things to note. First, have you ever noticed how dusty it seems right after you’ve blown your airbag? That’s a powder like talcum powder that ensures your folded up bag will unfold properly when rapidly inflated.

Second, a lot of you might have noticed that your airbag deflates very quickly after an accident. Ever wonder why that is? If you are hitting something hard enough to set off your airbag, your forward momentum is going to move you along very quickly. Hitting a tightly inflated bag of air at that rate of speed is still going to hurt quite a bit, and possibly cause injury. So the bag deflates rapidly as your body strikes it, in order to cushion the impact. It’s just like that massive bag of air that catches stuntmen when they jump off a building.

So what exactly did the Takata airbags do differently that made them so dangerous?

The defective Takata airbags work just like any other, with one exception. The inflator (the rocket motor-like explosive device) has a casing that explodes along with the burning powder itself. This sprays out hot shrapnel into the car with deadly velocity. In some cases enough to kill an occupant. It’s as simple as that. There’s nothing inherently wrong with the airbags other than the shrapnel, but that’s quite the understatement is it not?

Initially it was thought that the inflators only failed in warm, humid climates like Florida. So the first round of recalls for the Takata airbags was limited to parts of the world where this would be an issue. But as further research showed that the failure of the inflators was not related to climate, the recall expanded worldwide.

Now, the recall is being expanded to include another 2.7 million vehicles. This relates to the use of a particular desiccant (a chemical that keeps the airbag dry). It is thought to degrade the inflator, making it more likely to explode and launch shrapnel into the passenger compartment.

Economic Effects of the Recall

In the United States alone, it is reported that 42 million vehicles with defective airbags have been recalled. This is the largest recall in the history of the US, and it does not include the recent 1.7 million vehicles added recently.

So millions of people have to make appointments at their local dealership and take time out of their precious schedules to go and have them fixed. This is probably why less than a third of all recalled vehicles have been repaired so far. Many people can’t afford to not work for the several hours it takes to get the repairs done. Others just don’t want to deal with the hassle.

The other issues is how to inform everyone who needs a repair. With the news of the Takata recall being a worldwide sensation, it’s unlikely too many owners are unaware that their vehicle is in need of repair. The automakers themselves have also done a very good job of mailing and re-mailing repair alerts to owners.

Takata has agreed to pay $1 billion in damages. A portion of this money goes toward people who have been either injured or killed by their faulty deflators. As of now, 12 deaths in the United States have been attributed to the faulty airbags. Let’s hope this number never goes up.

Takata officially filed for chapter 11 bankruptcy on June 27, 2017. What does this mean for all of those recalled vehicles that have not been repaired? Will Takata still have to honor the $1 billion in dagames that they have to pay out for injuries relating to the the defective inflators? Let’s look at chapter 11 bankruptcy in general, and then we will focus on how it will affect Takata specifically.

Chapter 11 bankruptcy is often viewed as a business reorganization. This means that Takata won’t necessarily be out of business when the bankruptcy is over. Usually in chapter 11, a business is bought at a discount by another company and continues to operate. The court will direct the selling off of some of the business’s assets, and it may require creditors to agree to only receive a portion of the total debt they are owed.

The end result of a chapter 11 bankruptcy tends to be a new version of the business. It has new ownership, it’s smaller, more efficient, and has few liabilities owed to creditors. But in the case of Takata, certain creditors are likely going to take priority and have to be paid in full. This will more than likely be people like those injured by Takata, and the automotive companies who have to pay to repair vehicles as a result of Takata’s defect. Let’s take a look at this in more detail.

What Bankruptcy Will Do

It has been reported that Key Safety Systems, a Chinese company, will probably buy Takata when the business is restructured via chapter 11 bankruptcy. This will satisfy the need for a new business to take over Takata via chapter 11.

People injured by Takata airbags can be compensated through a $125 million fund which was created as part of Takata’s criminal settlement. This fund has priority over other debts in the chapter 11 bankruptcy, so other creditors will have to take a loss before the $125 million fund can be reduced via bankruptcy.

It has also been reported that Takata will likely have to continue to provide parts for repairs. This only makes sense, since there would be now way to honor the vehicle recall without repair parts.

Automakers who have had to fund the repair of recalled parts thanks to Takata will be compensated. It’s reported that this compensation will not be affected by bankruptcy. So far BMW, Toyota, Mazda, and Subaru have specific dollar amounts with a grand total $553 million. The total payout will likely be far greater because there are other automakers subject to this recall, and the recall itself has already expanded more than once since the issue was first reported a few years ago.

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