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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37845
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I had sold my interest in a business to a partner 1 and a

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I had sold my interest in a business to a partner 1 and a half years ago and had a 5 year non compete clause in the agreement. If I file bankruptcy chapter 7 can I start work in that field without a threat of suit?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 6 years ago.

Assuming that the noncompete is valid and enforceable as currently agreed to, then a bankruptcy will have no effect, because the bankruptcy discharge only relieves the debtor from the personal obligation to pay a debt. It does not relieve the debtor of a personal obligation to act or forebear from action.


Hope this helps.


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Expert:  socrateaser replied 6 years ago.

I need to back away slightly from my previous answer:


Whether or not a bankruptcy court will permit rejection generally reflects the court's perception of whether the debtor has legitimate financial problems or is merely trying to avoid the effects of an ill-considered contract. Most courts permit the trustee reject a personal services contract, including any noncompetition covenants, if there is a legitimate bankruptcy purpose. See Delightful Music Ltd. v Taylor (In re Taylor) (3d Cir 1990) 913 F2d 102 (debtor with financial problems permitted to reject exclusive recording contract). But see In re Carrere (Bankr CD Cal 1986) 64 BR 156 (contract between debtor and third party "that is based upon the personal service or skill of the debtor" does not become property of Chapter 7 or Chapter 11 estate and is therefore not subject to rejection in cases under Chapter 7 or 11).

Edited by socrateaser on 3/1/2010 at 8:54 PM EST