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Bankruptcy and Contracts Questions

How does bankruptcy affect the different types of contracts? There are a lot of things that an individual needs to mention when he/she files for bankruptcy. He/she may have to include most of his/her assets in the bankruptcy petition. Bankruptcy can also affect an individual’s taxes and income. Executory contracts are another thing that may be affected in bankruptcy. Given below are important questions about the relation between bankruptcy and contracts, and how the different chapters of bankruptcy may affect the many different kinds of contracts.

Would an Individual’s Postal Contracts be Cancelled if he/she filed for Bankruptcy?

An individual may not lose his/her postal contracts if he/she filed for bankruptcy. The bankruptcy code does not allow any government agency to discriminate against a debtor because he/she filed for bankruptcy.

Would an Exclusive Distributorship Agreement be considered an Executory Contract in a Bankruptcy?

Exclusive distributorship contracts may be considered as executory contracts if they are in force and not cancelled. They may be listed on Schedule G when an individual files for bankruptcy.

Would an Individual’s Employment Contract be Valid if his/her Company files for Bankruptcy?

In most situations, if a company files for Chapter 7 bankruptcy; the individual’s employment contract with the company may not be considered to be valid. When a company files for a Chapter 7 bankruptcy, all its contracts and proceedings may get cancelled. The company may get liquidated by the bankruptcy court. If there are any funds in the company, they would be distributed to all the creditors, including the employees.

Would a Creditor be able to Sell his/her Contract to a Third Party in a Chapter 13 Bankruptcy?

In most cases, a creditor may be able to sell his/her contract to a third party in a Chapter 13 bankruptcy if the contract has a clause in it that permits the transfer or sale of the account or contract to another person. This may however, not change the terms of the contract or the bankruptcy. The creditors may file an assignment of claim form informing the trustee to pay the new owner of the account.

Can an Individual Sign a Contract with a Cell Phone Company before filing for Bankruptcy?

In many situations, an individual may sign a cell phone contract before filing for bankruptcy. Once he/she files for the bankruptcy, the company may not be able to charge the individual with the cancellation fee. The company may either terminate the service and sign a new contract with the individual or change the individual’s contract to a month to month contract. In some situations however, the bankruptcy court may consider this to be fraud and dismiss the bankruptcy filing.

Can a Business file for Chapter 11 Bankruptcy in order to delay the Cancellation on a Contract for Deed?

A Chapter 11 bankruptcy usually gives the business time to reorganize its debt and remain active. Hence, a business may file for Chapter 11 bankruptcy if it wants to delay the cancellation of a contract for deed.

Would an Individual’s Payment be Affected if he/she signed a Contract with a Company that has filed for Chapter 7 Bankruptcy?

A contract that is signed with a company after the company files for a Chapter 7 bankruptcy may not be a part of the bankruptcy petition. Hence, there may not be any bankruptcy stay on the contract and the individual’s payment may not be affected unless the company amends the bankruptcy petition and requests the contract to be added in the bankruptcy filing.

Bankruptcy can affect both parties in a contract. Knowing how a bankruptcy petition can affect a contract will help individuals when filing for bankruptcy. Information about the effect of bankruptcy on a contract will also help individuals determine their course of action if they have a contract with a company or person who has filed for bankruptcy. When you are not sure of your rights and the impact of bankruptcy on a contract, it’s always a good idea to ask an Expert.
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