(Dow Jones) Linda Roberts thought she would enjoy lifetime health benefits after a dozen years of lifting radiators and iron in a factory for Visteon Corp. (VSTNQ). But the car-parts maker won bankruptcy-court approval to terminate those retiree benefits, just months after Ms. Roberts, 62 years old, was diagnosed with multiple myeloma and leukemia.

"It's inhumane," said her husband, Jerry Roberts, who digs ditches and performs other excavation work. The 63-year-old has earned less than $16,000 annually in recent years, and even with Social Security benefits and Ms. Roberts' pension, health costs eat up more than two-thirds of their income.

Now, a federal appeals court has given the Robertses and thousands of other Visteon retirees some potential relief. In mid-July, the Third U.S. Circuit Court of Appeals of Philadelphia reversed previous decisions that allowed Visteon to terminate benefits for more than 6,000 retirees without taking certain legal steps in bankruptcy court.

The ruling means that roughly 2,100 retirees should resume receiving health-care and life-insurance coverage, so long as Visteon remains under bankruptcy-court protection, which could last at least another month or so, and possibly longer. Other retirees have filed court papers arguing they, too, should be covered by the appeals court decision.

The appeals court denied Visteon's request to rehear the case. A Visteon spokeswoman said the company believes the decision applies only to the retirees who appealed to the third circuit; Visteon plans to reinstate benefits for those former workers until it exits bankruptcy proceedings. But it is Visteon's "intention to ultimately terminate these benefits," she said.

Companies reorganizing under Chapter 11 protection argue they can simply no longer afford the costs to pay for retirees' health care and pensions. They almost always prevail in terminating these contracts.

Yet with stakes so high, former employees are engaging in wide-ranging, 11th-hour fights to hold on to the benefits, if even for a few extra months. The battles have become especially contentious in the midst of the economic downturn, when new jobs are scarce and states and the federal government are cutting their own benefit programs.

With Visteon, the federal appeals court ruled the company had failed to follow proper procedures in terminating benefits, ignoring safeguards Congress enacted decades ago to protect retirees' coverage in bankruptcy proceedings. Visteon can still cut off the benefits but must meet higher legal burdens to do so. The company also can eliminate the benefits once it exits Chapter 11 court protection.

Days later, the ruling spurred another company, Nortel Networks Inc. (NRTLQ), to drop a similar move to end $2 million in monthly health, life insurance and long-term disability plans covering more than 4,000 retirees and their dependents.

Hundreds of Nortel retirees had written letters protesting the telecommunications company's move to end the benefits. Also, a bankruptcy watchdog from the Justice Department had questioned the company's inability to pay, noting that it awarded senior executives more than $50 million in bonuses during the company's liquidation.

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