Enforceable contracts involve unfulfilled obligations by one or more parties. During bankruptcy proceedings, debtors can accept or reject contracts, with consequences for both parties. Scrutinizing contracts is important for understanding obligations and pursuing claims.
An enforceable contract is a legal contract characterized by unfulfilled obligations by one or more parties to the contract. A simple example of an enforceable contract is a lease. The landlord is required to provide premises for rent and the person renting it must continue to pay the rent. If one party stops performing, it is a breach of contract and the other party may have reason to sue. In cases where both have unfulfilled obligations, breach by one party may allow the other to breach without penalty.
Many contracts are enforceable in nature. Executive contracts assume a particular meaning during bankruptcy proceedings and it is in this context that these types of contracts are most frequently spoken of. It is important that people filing for bankruptcy, as well as creditors, understand how enforceable contracts are involved in bankruptcy proceedings. For debtors who are unsure of their obligations, a bankruptcy attorney or accountant can provide assistance.
When a person files for bankruptcy, creditors are required to continue to carry out their end of enforceable contracts until the bankruptcy proceedings are completed. During the bankruptcy proceedings, the debtor decides whether to accept or reject the contract. If the debtor enters into the contract, the contract and its related obligations will stand until bankruptcy and the debtor will have to fulfill or “heal” the contract. For the creditor, this is good news, as it means that the debt will be paid, and it is also good news for the debtor, who will continue to be entitled to all the services that the creditor is performing.
By refusing an enforceable contract during the bankruptcy procedure, the debtor indicates that he intends to withdraw from the contract. The breach allows the creditor to sue for damages, but these damages are a form of unsecured debt, meaning the creditor has to wait in line behind other creditors. Once an enforceable contract is rejected, it also frees the obligee from any contractual obligations, which can be an advantage if the obligee had resources tied up in the contract that they can now enforce elsewhere.
As with any legal contract, an enforceable contract should be scrutinized for hidden surprises that could cause problems in the future. Both parties should ensure that they understand their rights and obligations under the contract. If you need to make a claim against such a contract, thorough knowledge of the terms and conditions can be very important in successfully pursuing the matter.
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