Legal Question in Bankruptcy in Pennsylvania

Re: Contractual validity with a Chapter 11 company

The bankruptcy code contains a section which addresses this situation. Section 365 deals with executory contracts and unexpired leases. The agreement you described is an executory contract as each party is obligated to perform on an ongoing basis.

These contracts are subject to being accepted or rejected by the court upon motion by the debtor, the company. The company must file a motion with the court and you must receive notice of the motion and your opportunity to defend it. The agreement may be accepted as long as the company is not in default. Conversely, the agreement may be rejected for any reason at all and your obligations under the agreement will then be cancelled.

Until the agreement is either accepted or rejected, it remains in full force and effect and you are obligated to perform. Thus, you must retain this company for the length of the contract, unless you hear otherwise.

If you receive any notices from the bankruptcy court or the debtor, you should review them with a bankruptcy practitioner immediately to assure your rights are protected.

I trust this has been helpful, but feel free to call or e-mail with any questions.