Comparing Chapter 7 and Chapter 13

An executory agreement is one where both sides still have significant obligations left to carry out. In other words, neither party has actually totally finished what they concurred to do. Common examples of executory contracts in a company context include: Devices leases Supply and supplier arrangements Service agreements Software application licenses Industrial genuine estate leases These are the kinds of arrangements that frequently become crucial when an organization files for personal bankruptcy.

, when a company files for insolvency, it gets the right to either assume or reject its executory agreements. Presuming a contract implies the service concurs to continue following it going forward.

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The other celebration to the agreement does not get to decide whether the agreement is assumed or rejected. The goal is to keep the company alive while restructuring its financial obligations. That is why there is much more versatility in how contracts are dealt with in Chapter 11 than in a liquidation.

Under 11 U.S.C. 365, the choice can usually be made at any point before the court validates the reorganization strategy. The other party to the contract can ask the court to set a deadline if the uncertainty is triggering them damage. If the company decides to presume an agreement in Chapter 11, it needs to do so completely.

365(b), this suggests treating any missed payments or defaults, compensating the other party for any losses triggered by those defaults, and supplying adequate guarantee that it can perform moving forward. Business can not decide on the parts of a contract it likes while rejecting the rest. Chapter 7 is a liquidation bankruptcy.

Assessing the Impact of 2026 Filings

Under 11 U.S.C. 365(d)( 1 ), in a Chapter 7 case, the trustee has 60 days from the date of filing to choose whether to assume an executory agreement. If the trustee does not assume the contract within that window, it is automatically thought about rejected.

When a contract is rejected in Chapter 7, the other celebration is again entrusted to a basic unsecured claim against the bankruptcy estate. In a liquidation, those claims are frequently paid very little or absolutely nothing at all, depending upon how much is left after protected financial institutions are paid. Lots of organization contracts include stipulations that state the agreement immediately ends or can be terminated if one celebration declare insolvency.

Business owners and their contract partners often assume these clauses will protect them. Under 11 U.S.C. 365(e), ipso facto stipulations are generally not enforceable in personal bankruptcy. An agreement can not simply be ended simply due to the fact that a bankruptcy was filed. This guideline exists to offer the debtor a fair opportunity to decide whether to assume or turn down the contract without the opposite ending automatically.

Attorney Vicky Fealy is Board-Certified in Consumer Insolvency Law by The Texas Board of Legal Expertise. She has actually helped thousands of individuals and businesses with financial obligation relief, and she is all set to guide you through every step. Contact us to set up a free assessment with our Galveston, TX insolvency attorney today.

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(Article Updated Jan. 6 and 8, 2026) This post notes federal and state consumer law modifications set up to go into effect or expire during the period from December 1, 2025, through January 1, 2027. Other customer law modifications will be enacted in 2026 and will enter into result in 2026; this article lists modifications whose effective dates have actually already been scheduled as of December 31, 2025.

A Guide to 2026 Bankruptcy Fees

Important changes to Bankruptcy Guideline 3002.1 and 6 associated brand-new personal bankruptcy forms went into impact on December 1, 2025. The modifications safeguard house owners who utilize chapter 13 personal bankruptcies to stave off foreclosures and keep themselves present on their mortgages, giving them info needed to successfully complete a treatment plan and emerge from chapter 13 without surprise, concealed costs, or payment quantities due.

New Rule 8006(g) will clarify that any party to an appeal may submit a request that a court of appeals license a direct appeal. 26 U.S.C. 108(a) supplies that certain forgiveness on a home loan is not considered income for earnings tax functions, however the Qualified Principal Residence Insolvency Exemption from Income ended at the end of 2025.