While practice in many areas of the law has shrunk in light of the recent economy, bankruptcy has boomed, bringing widespread attention and scrutiny. Chrysler’s filing for bankruptcy has been drawn special attention, both for what it means to the American economy, as well as for how it was decided. To shed light on the matter, the Association of Law and Business invited Bankruptcy Chief Judge Paul Hyman of the Southern District of Florida to speak to students on Wednesday.

Hyman began the event by giving a brief background on Chapter 11 bankruptcies, and the recent troubles of Chrysler in particular. The automotive giant struggled with declining sales and a massive debt burden, and was trying to restructure itself to become profitable and avoid bankruptcy.

“It had also widely marketed itself for either merger or sale,” Hyman said. “That process resulted in only one potential suitor, and that was Fiat.” Fiat, an Italian carmaker, had offered to buy Chrysler for $2 billion, plus the assumption of certain debts that Chrysler had incurred.

While $2 billion may not sound like a substantial offer for a corporation as big as Chrysler, Hyman pointed out that had the sale not gone through, Chrysler’s creditors would have likely received even less.

“The testimony was that the assets in a liquidation basis were worth $800 million, and the purchaser was paying $2 billion. Therefore, the creditors were receiving more than they would receive in liquidation.”

This plan was agreeable to almost all of Chrysler’s creditors, but one put up a fight.

“The only objecting party to the proposed sale was the Indiana Pension Plan,” Hyman said, “which held bonds in the amount of $42 million, which was less than one percent of the secured debt. That was the only party that was really objecting to the sale that was not resolved prior to the sale.”

The sale came before Judge Arthur Gonzalez of the Southern District of New York, who held that the sale could go through.

“Judge Gonzalez found a good business reason to approve the sale, based on the facts presented at an evidentiary hearing,” Hyman explained. “He found pre-bankruptcy efforts to restructure the debtor were extensive, the sale was the only viable option to Chrysler, the sale would net more to creditors than a liquidation, the sale would ensure restarting of the manufacturing process, it would prevent a loss of employees,” and further problems.

Hyman stressed that Gonzalez’s finding was based on the facts presented, but also stated that these kinds of decisions are not made in a vacuum, and that judges are well aware of what is going on in the world around them.

“I read the paper, I look at the Internet, I watch TV, I, of course, know what’s going on, Hyman said. “And, in this case, Fiat and Chrysler put on evidence to substantiate all these findings of fact that Judge Gonzalez made. There was no question that this was a failed entity as it was presently structured.”