If you’re considering filing for bankruptcy and your financial obligations outweigh your income, it’s likely you’ll qualify for Chapter 7 bankruptcy. This form of bankruptcy allows you to liquidate your assets to repay creditors and discharge certain crippling debts. The benefits of Chapter 7 bankruptcy can be significant. Some who need to file for bankruptcy may have certain legally binding contracts in their name, such as a vehicle lease or a lease for the purchase of real estate (i.e. a contract for deed). Behm Law Group, Ltd. can help you determine how these different contracts will be treated during a petition in Chapter 7 bankruptcy in Pipestone, MN.
One kind of legal contract commonly considered during a bankruptcy case is an executory contract.
What is an executory contract?
A lease or other contract that is active during the filing process and to which parties are still obligated is titled as an executory contract in a bankruptcy case. These contracts are different from other kinds of legal documents under the filer’s name, such as a vehicle loan, mortgage or tax debt, and they are treated differently during a Chapter 7 bankruptcy case.
Some common examples of executory contracts include car leases, apartment leases, long-term rental agreements, business contracts, real estate sale contracts, insurance agreements, timeshares, and docking agreements.
The main difference between an executory contract and other types of contracts during liquidation bankruptcy is that the agreement is current and in effect.
What happens during Chapter 7 bankruptcy?
Because an executory contract is in effect at the time the filer petitioned for Chapter 7 bankruptcy, it must be addressed during the case with a decision that will be beneficial for the filer and for the creditors. This decision can be made by your bankruptcy trustee, if there is equity or value in the executory contract (i.e. if the value of the contract exceeds any debt or other obligations associated with it). If there is no value for the trustee, she would abandon the executory contract and you would make this decision. Basically, either the trustee or you can choose one of two options: assume or terminate. If the executory contract is assumed, you or the trustee would be obligated to continue making payments on that contract, unless it is sold to another party. However, because there may often be no equity or value to the executory contract, it’s more often the case that the executory contract will be terminated. If the contract is terminated, the owner will repossess any leased property and you’ll no longer be obligated to make any payments.
If you’re in current binding contracts or leases and would like to know more about how they’ll be treated during a Chapter 7 case, contact Behm Law Group, Ltd. at (507) 387-7200 for information about filing for Chapter 7 bankruptcy in Pipestone, MN.