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Warranty gold enters chapter 11 bankruptcy


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Warranty Gold enters Chapter 11 bankruptcy

Colin Pope

Austin Business Journal Staff

Warranty Gold Ltd., an Austin-based company that sells extended vehicle warranties online, has filed for Chapter 11 bankruptcy protection and is asking the U.S. Bankruptcy Court for permission to void about 67,000 customer policies.

 

 

According to a bankruptcy petition filed Nov. 11 in Austin, Warranty Gold is trying to reorganize $10 million to $50 million worth of debt. The company's assets also are listed in that range, but Warranty Gold's filing states it will be financially impossible to meet all of its financial obligations.

 

Warranty Gold has been bombarded with customer complaints since June, when customer claims started to go unpaid. Those problems stemmed from Warranty Gold's underwriter -- Lincoln, Neb.-based National Warranty Insurance Co. -- filing for the equivalent of Chapter 11 bankruptcy protection in the Cayman Islands last summer.

 

Warranty Gold attempted to temporarily deal with disgruntled customers directly after its underwriter bailed and eventually struck a deal with a new underwriter in June. But when the customers covered under the older policies discovered they would have to pay for car repairs out of their own pocket, Warranty Gold was hit with a flurry of lawsuits and hundreds of customers who paid premiums by credit card disputed the charges and drained Warranty Gold's coffers.

 

Despite the problems, Warranty Gold continues to issue policies, but it now relies on Albuquerque, N.M.-based First Automotive Risk Retention Group Inc. as an underwriter. Warranties issued after June 7 with First Automotive remain in effect, even though First Automotive is one of Warranty Gold's largest unsecured creditors -- owed more than $1 million, according to the filing.

 

Warranty Gold hired Austin law firm Porter Rogers Dahlman & Gordon PC to lead it through the bankruptcy process.

 

Warranty Gold is using Chapter 11 to buy the time it needs to ensure the newer warranties remain valid. The bankruptcy process also offers Warranty Gold a safer operating environment as it attempts to recoup some of its losses from its previous underwriter.

 

Warranty Gold executives couldn't immediately be reached for comment.

 

Email COLIN POPE at (cpope@bizjournals.com).

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