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NEW YORK (CNNMoney.com) -- Harley VanDeloo, a 69-year old retiree in Thousand Oaks, Calif., has resigned himself to losing an important piece of his retirement income: interest payments from $25,000 worth of General Motors bonds.

The bonds were due to pay VanDeloo about $1,000 twice a year, an important supplement to his social security benefits that he said are his main source of income.

"It's not going to kill us, but it's significant," he said about the loss of income.

VanDeloo, a self-described car enthusiast who says his GM van is the best car he's ever owned, bought the bonds at a 20% discount just over a year ago. He believed GM (GM, Fortune 500) was on the verge of a turnaround and that the bonds were relatively safe despite having already been downgraded to junk bond status by the rating agencies.

He said he didn't care about the bonds' prices. He was attracted instead to the better than 8% yield the bonds paid. "They were due to be paying off well after I'm gone," he said about the debt, which matures in 2033.

VanDeloo said he had been hoping that GM would avoid bankruptcy right up through January of this year. But as the company's sales and financial performance continued to sink, so did his hopes for his income stream. The January payments did arrive, but he thinks the automaker is likely to default on its debt before the next payment is due in June.

VanDeloo is just one of many average Americans who could lose out if GM goes bankrupt. According to an ad hoc committee of GM bondholders, which represents the major bondholders in negotiations with the company, nearly $6 billion of the $28 billion in unsecured bonds are held by retail investors, in blocks as small as $25 in some cases.

That's in stark contrast to the situation at privately held Chrysler LLC, where almost all of its debt is held by banks and major investors.

"GM bondholders are not a collection of Wall Street banks," the committee wrote in late March to the government's auto industry task force charged with overseeing the bailout of GM and Chrysler. "Many of these bonds are owned by average citizens, who purchased them to support their own retirement and college expenses and other critical needs."

About 80% of the debt is owned by major institutional investors, mainly hedge funds or mutual funds that bought the GM debt at levels far more distressed than the price VanDeloo paid.

For example, European financial services giant Fortis greatly increased its holdings of GM convertible bonds last year, according to FactSet Research. So did Citigroup's Global Markets unit. Growth fund Longleaf Partners disclosed in a regulatory filing last year that it sold most of its GM stock in the third quarter of 2008 and invested the proceeds in GM bonds.

It's the major investors who formed the ad hoc committee. Their negotiations with GM about the future of their holdings are likely to determine whether the company is forced to file for bankruptcy by June 1.

GM and the Treasury Department are trying to force the bondholders to swap debt for about 90% of the equity in a reorganized GM, along with a limited amount of new bonds.

But the bondholders' financial advisors are arguing they are being asked to take a much larger hit than the unions or other GM creditors, and that they shouldn't be expected to accept stock in a company that may yet end up in bankruptcy.

Bondholders are in better position than stockholders to recover at least part of their investment in the case of a bankruptcy, however.

The advisors to the bondholders' committee insist they are willing to work with GM to negotiate a deal acceptable to both sides but that the government and GM have had virtually no real dialogue with bondholders about GM's proposed restructuring plan.

Spokespeople for GM and the Treasury Department did not respond to requests for updates on negotiation on the debt.

Still, some experts said that the lack of progress on the talks does not mean that there won't be a deal as the deadline nears.

"It's a complicated set of constituents and economic forces at work," said Bob Schulz, S&P's senior auto credit analyst. "There's a number of ways that it could play out. We're not trying to predict in advance which way it would go."

But other debt analysts believe the momentum has tipped towards bankruptcy.

Shelly Lombard, an analyst with research firm Gimme Credit, downgrading GM's debt to "sell" last month and wrote in a report that she expects the task force "to push GM into bankruptcy rather than push back the deadline."

Almost all of GM's unsecured bonds were issued when GM was still making money and had investment grade rated debt. But many of those bonds, including the ones owned by VanDeloo, have been bought and sold at a discount since GM was downgraded to junk bond status in 2005.

Many average investors weren't anticipating trying to sell the bonds if they gained in price. Instead they were only looking for the high yield they paid.

Teresa Durhone, who retired early from her job as a paralegal to take care of her 83-year old mother in Ocala, Fla, said she'd be happy to hang onto her GM bonds if she could continue to count on the bonds paying 8% interest.

"To this day, if they told me GM would be OK, I'd hold them to maturity," she said. "It wasn't a speculative venture for me. It was an attempt to get a nice solid retirement income that would allow me to stay home with my mother."

She said the GM bonds, which have an original face value of $25,000, are about 10% of her savings, and an even greater percentage of her retirement income. She said she's still hopeful the company can survive without bankruptcy. But she's very worried.

"I try not to obsess over it but I do lose a little bit of sleep," she said.