Last week, I covered one reader's problems with MPC Corporation and her impulse to file a class-action suit against the now-defunct company. That post spurred a lot of letters from people who wanted to join in that suit. One from DJ asks, "A class-action lawsuit against a company already in bankruptcy is sort of beating a dead horse, don't you think?" I do think so, actually.
I'm not a lawyer, though, so I spoke to attorney and JustAnswer consumer protection law expert Paul Moretti about customers' rights in these cases -- specifically about MPC Corporation (and Circuit City) and what consumers can, should, and should not do when they find themselves stuck with a computer and a warranty from a company gone bust.
What is your warranty worth?
Since many of the letters I got regarding MPC involve warranty service, let's talk about that first.
"Once a company goes bankrupt," explains Moretti, "anyone who has a claim against that company has to file it in the bankruptcy court." If your claim is that the company owes you warranty service that you paid for, that makes you an unsecured creditor. Unfortunately, claims from unsecured creditors go to the bottom of the list of people waiting for money from the company.
"And if there is no money to pay to secured creditors," says Moretti, "there is certainly none for unsecured creditors. In that case, all these warranty claims get extinguished by the bankruptcy. MPC customers end up with a piece of paper that says 'warranty' but that can't be enforced."
Or as DJ pointed out, beating a dead horse. Does that mean you should not bother to file your case?
"No!" says Moretti. "You should file. But don't hire a lawyer to do it because that will cost you more than you are likely to get back."
The court awards unsecured creditors in the order they filed their claims. "You essentially file your claim and take a number," says Moretti. "If there is only enough money to pay 500 people, the court will pay the first 500. If there isn't enough money to pay anybody, all of those debts get extinguished."
Keep in mind, though, that the court is unlikely to pay the full dollar amount owed you even if there is money to pay. "They might pay 20 cents on the dollar," says Moretti. "You might end up getting only $5."