Navigating Chapter 7 and 13 Laws for 2026

An executory contract is one where both sides still have considerable commitments delegated perform. To put it simply, neither celebration has fully completed what they agreed to do. Typical examples of executory contracts in a service context consist of: Equipment leases Supply and vendor contracts Service contracts Software licenses Industrial genuine estate leases These are the kinds of agreements that frequently become important when a service apply for bankruptcy.

365, when a company files for personal bankruptcy, it gets the right to either assume or reject its executory contracts. That decision has significant effects for everybody involved. Assuming a contract indicates business agrees to continue following it moving forward. Declining an agreement indicates business walks away from it.

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The other party to the contract does not get to choose whether the agreement is presumed or turned down. Their rights depend entirely on which path the debtor takes. Chapter 11 is a reorganization insolvency. The objective is to keep the service alive while reorganizing its debts. That is why there is much more flexibility in how contracts are dealt with in Chapter 11 than in a liquidation.

Under 11 U.S.C. 365, the decision can normally be made at any point before the court confirms the reorganization plan. The other party to the contract can ask the court to set a deadline if the uncertainty is causing them harm. If business decides to presume a contract in Chapter 11, it must do so in full.

365(b), this suggests curing any missed out on payments or defaults, compensating the other party for any losses brought on by those defaults, and providing appropriate assurance that it can perform moving forward. Business can not select and select the parts of an agreement it likes while rejecting the rest. Chapter 7 is a liquidation insolvency.

Evaluating Chapter 7 or 13

A trustee is designated to sell assets and pay lenders. In this scenario, agreements are handled extremely in a different way. Under 11 U.S.C. 365(d)( 1 ), in a Chapter 7 case, the trustee has 60 days from the date of submitting to choose whether to presume an executory agreement. If the trustee does not presume the contract within that window, it is immediately considered rejected.

When a contract is rejected in Chapter 7, the other party is once again entrusted a general unsecured claim against the personal bankruptcy estate. In a liquidation, those claims are typically paid really little or nothing at all, depending upon just how much is left after secured financial institutions are paid. Lots of business contracts contain provisions that state the contract immediately ends or can be ended if one party files for bankruptcy.

Company owner and their contract partners often presume these stipulations will secure them. Under 11 U.S.C. 365(e), ipso facto clauses are usually not enforceable in insolvency. A contract can not just be ended just due to the fact that a personal bankruptcy was submitted. This guideline exists to give the debtor a reasonable opportunity to decide whether to assume or turn down the contract without the opposite ending instantly.

Lawyer Vicky Fealy is Board-Certified in Consumer Personal Bankruptcy Law by The Texas Board of Legal Specialization. She has helped thousands of people and businesses with debt relief, and she is all set to direct you through every action.

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(Article Updated Jan. 6 and 8, 2026) This short article lists federal and state consumer law modifications set up to enter into effect or end throughout the duration from December 1, 2025, through January 1, 2027. Other consumer law modifications will be enacted in 2026 and will enter into effect in 2026; this post notes modifications whose efficient dates have already been set up since December 31, 2025.

How to Halt Garnishments in 2026

NCLC motivates readers to send (to) additional consumer law changes efficient in 2026, particularly modifications in state consumer legislation. NCLC will add appropriate submissions to this article. Essential amendments to Insolvency Rule 3002.1 and 6 associated new insolvency types entered into result on December 1, 2025. The modifications safeguard homeowners who use chapter 13 personal bankruptcies to stave off foreclosures and keep themselves current on their mortgages, providing information needed to effectively complete a cure strategy and emerge from chapter 13 without surprise, concealed costs, or payment quantities due.

New Rule 8006(g) will clarify that any celebration to an appeal may submit a demand that a court of appeals license a direct appeal. 26 U.S.C. 108(a) supplies that certain forgiveness on a mortgage loan is not considered earnings for earnings tax functions, but the Qualified Principal House Insolvency Exclusion from Income expired at the end of 2025.