Bankruptcy and Executory Contracts

Even if you have never heard the term “executory contract”, you have likely been a party to one. In fact, chances are good that you are a party to an executory contract right now. If you are a party to one of these contracts and find that you are unable to perform your obligation under the contract, bankruptcy may be the best solution.

An executory contract is simply a contract that has yet to be completed. Once all parties to a contract have fulfilled all of their obligations under the contract, it is considered an executed contract. Up to that point in time, however, it is referred to as an executory contract. You have probably been a party to numerous executory contracts throughout your lifetime without realizing it. For example, if you have ever leased a car or an apartment, you were part of an executory contract.

Often, when an individual falls on difficult financial times, he or she gets behind on the obligations under an executory contract. For example, if you leased a car and are struggling financially, you might fall behind on the payments. This is even more likely if you enter into a contract where you are paying more than you should be for the asset. For example, if you were forced to go through a “buy here, pay here” company to purchase a vehicle, or if you got talked into purchasing an over-priced Time Share Condominium, you may now be struggling to make the payments.

Filing a Chapter 7 bankruptcy case may be the best way to handle your overall financial problems, including your obligations stemming from executory contracts. A debtor can be released or “discharged” from the amount still owing on an executory contract at the time the petition for bankruptcy is filed. In other words, your balance due can be discharged, or erased, through bankruptcy. Of course, you will not be able to keep the asset if you choose to go this route; however, you will be relieved of the debt.

Debtors often make the mistake of assuming that agreeing to a voluntary repossession, moving out of a leased apartment or home before the lease is over, or otherwise “giving back” the asset that is the subject of the contract will release them from any further obligations on that debt. Unfortunately, the truth is that you could end with a continuing debt without the benefit of the use of the car/apartment/time share condominium.

Short of completing all your obligations under the contract, bankruptcy may be the only way to ensure that you are clear of any remaining debt on an executory contract. Talk to an experienced Texas bankruptcy attorney about your legal options with regard to these contracts.

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