Professional Legal Guidance in 2026

An executory contract is one where both sides still have substantial commitments left to carry out. In other words, neither party has fully completed what they concurred to do. Common examples of executory contracts in a company context include: Equipment rents Supply and vendor arrangements Service agreements Software licenses Business property leases These are the kinds of agreements that typically end up being important when a service apply for personal bankruptcy.

365, when a business declare personal bankruptcy, it acquires the right to either presume or decline its executory agreements. That decision has major effects for everybody involved. Assuming an agreement means business consents to continue following it moving forward. Rejecting an agreement means the service ignores it.

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The other celebration to the agreement does not get to choose whether the agreement is assumed or declined. The goal is to keep the business alive while restructuring its debts. That is why there is much more versatility in how agreements are treated in Chapter 11 than in a liquidation.

Under 11 U.S.C. 365, the decision can typically be made at any point before the court confirms the reorganization strategy. The other party to the contract can ask the court to set a deadline if the unpredictability is triggering them harm. If business chooses to presume an agreement in Chapter 11, it needs to do so in complete.

365(b), this indicates curing any missed out on payments or defaults, compensating the other celebration for any losses brought on by those defaults, and offering sufficient guarantee that it can perform going forward. The service can not choose the parts of a contract it likes while declining the rest. Chapter 7 is a liquidation insolvency.

Long-Term Effects of Filing

Under 11 U.S.C. 365(d)( 1 ), in a Chapter 7 case, the trustee has 60 days from the date of submitting to decide whether to presume an executory contract. If the trustee does not presume the agreement within that window, it is automatically considered turned down.

When an agreement is rejected in Chapter 7, the other party is once again entrusted a general unsecured claim versus the personal bankruptcy estate. In a liquidation, those claims are often paid really little or nothing at all, depending upon how much is left after protected financial institutions are paid. Many organization agreements contain stipulations that say the contract immediately ends or can be ended if one party declare personal bankruptcy.

Under 11 U.S.C. 365(e), ipso facto clauses are normally not enforceable in bankruptcy. A contract can not merely be terminated simply due to the fact that a personal bankruptcy was submitted.

Lawyer Vicky Fealy is Board-Certified in Customer Insolvency Law by The Texas Board of Legal Expertise. She has assisted thousands of people and companies with debt relief, and she is prepared to assist you through every action. Contact us to arrange a complimentary consultation with our Galveston, TX personal bankruptcy attorney today.

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(Post Updated Jan. 6 and 8, 2026) This post notes federal and state customer law changes arranged to go into impact or expire throughout the duration from December 1, 2025, through January 1, 2027. Other customer law modifications will be enacted in 2026 and will go into impact in 2026; this post lists modifications whose reliable dates have currently been arranged as of December 31, 2025.

Reliable Legal Support in 2026

NCLC motivates readers to submit (to) additional customer law changes effective in 2026, particularly changes in state customer legislation. NCLC will add proper submissions to this article. Crucial modifications to Personal bankruptcy Rule 3002.1 and 6 associated brand-new personal bankruptcy types went into impact on December 1, 2025. The modifications secure homeowners who utilize chapter 13 personal bankruptcies to fend off foreclosures and keep themselves current on their home loans, providing them details required to successfully complete a treatment strategy and emerge from chapter 13 without surprise, concealed charges, or payment amounts due.

New Guideline 8006(g) will clarify that any party to an appeal may submit a demand that a court of appeals authorize a direct appeal. 26 U.S.C. 108(a) provides that specific forgiveness on a home mortgage loan is not considered earnings for income tax purposes, but the Qualified Principal Residence Indebtedness Exemption from Income expired at the end of 2025.