Because Pacific Gas and Electric has filed for Chapter 11 bankruptcy, those who have filed a PG&E fire lawsuit will have to wait for justice – and may not get it at all.

One of the largest private utilities in the U.S., PG&E is now facing $30 billion in liability. It announced last month that it was seeking bankruptcy “protection” under Chapter 11.

What is Chapter 11?

Chapter 11 of the U.S. Bankruptcy Code is generally reserved for business entities, such as corporations and partnerships, although individuals may qualify under rare circumstances. It allows a company to remain in operation while it “restructures” its debt.

Usually, there is no trustee appointed to supervise or take over the operation. However, the Court may appoint one if it is found that company management acted in a fraudulent or incompetent manner.

Although on the surface, it may be “business as usual” at a company in a Chapter 11 bankruptcy, all major decisions are made by the Court. This includes:

• sales of assets
• financing (if the company wants take out a loan)
• shutdowns or expansions of business operations
• entering or modifying contracts
• payments for legal and accounting services

Creditors and shareholders have some say in these decisions; however, the bankruptcy court has the final say on these matters. Once the petition for bankruptcy has been filed, the debtor – in this case, PG&E – is granted a specific amount of time to propose a reorganization plan by the court (usually, four months).

If PG&E fails to do this to creditors’ satisfaction, the latter may move to dismiss the petition and convert it to Chapter 7. This would mean that the company would be turned over to a trustee and all assets liquidated – in essence, a corporate “death sentence.”

Unfortunately, this plan does not cover plaintiffs who have filed a PG&E fire lawsuit.

What About the Fire Victims?

However PG&E’s bankruptcy plays out, the first to be paid off will be banks that hold any company debt or assets. After that will be secured creditors (such as mortgage lenders or others that have a lien on company property), followed by unsecured creditors (suppliers, contractors and customers).

If there is any money left over, plaintiffs who have filed a lawsuit against the company may be able to press their claims. However, because of the amount of liability involved, there is serious doubt that there will be anything left with which to pay judgments.

Is There Any Hope For PG&E Fire Lawsuit Plaintiffs?

It is not clear how or when PG&E fire lawsuit claimants will see a resolution, if ever. At the same time, PG&E, if it survives its latest bankruptcy (the last time was in 2001), it will have to raise its rates by at least 17 percent – although this would require regulatory approval. That’s if it is able to raise money by selling off assets and bonds. Otherwise, ratepayers could see their electric bills double. Already, the company plans to cancel millions of dollars’ worth of employee bonuses.

The fact is that PG&E is a corporate repeat offender, however – and the Public Advocates Office of the state’s Public Utilities Commission has already warned that it will fight any attempt on PG&E’s part to force customers to pay for their negligence.

It is impossible at this point to predict how PG&E fire litigation will play out at this point. It may require a legislative solution from Sacramento to force PG&E to ultimately compensate those who lost property because of the utility’s failures.