§ 28.10 Summary

• Jurisdiction: United States
• Publication year: 2022

§ 28.10 Summary

Bankruptcy can be an extremely complicated process, especially for someone who is unfamiliar with the practice area and its unique argot. Debtors-in- possession and bankruptcy trustees on one hand, and their contract counter parties, on the other, have been immersed in a constant "tug-of-war" seeking protection due to cash flow difficulties, insolvency and other problems. The bankruptcy statutes and rules have established a process under Article 2 of the U.S. Constitution¹ for handling insolvency cases from the filing of a voluntary or involuntary bankruptcy petition to final disposition.² While detailed and elaborate, the statutes and rules do not explain or clarify several key concepts even after the 1984 and 1994 amendments.

It is a truism worth repeating—the parties to a contract or lease should understand the "fine print" in their contracts and leases. Less obvious, is that they should be well versed in the applicable provisions of the Bankruptcy Code and know how their rights may be affected by the statutory scheme, Understanding the bankruptcy process and the impact bankruptcy law may have on their bargained for rights should one of the parties seek protection can only enhance economic outcomes.

Moreover, contracting parties have tools at their disposal at the time of contract formation they can use to manage bankruptcy risk. For example a contracting party can attempt to obtain certain protections that will not be controversial when a contract is being drafted, such as including a provision defining what will be required to provide the party with "adequate...