Essay: Laws of Contract and Bankruptcy for Small Companies

Sample Essay

Every contract practically stipulates that if any of the parties binding a contract with each other goes bankrupt or insolvent, this may lead to any of the parties terminating or ending the contract. Negotiation is rare in these kinds of terminations of contracts unless there is a clause which states that the ownership of property is reversible often intellectual property. This essay attempts to take a peek at the same requirements and investigates whether they can be enforced or not.

When a business is facing its ups and downs, it is not in the position to cover its debts or pay back its creditors; it is allowed to file in surveillance of federal courts, for bankruptcy defense accordingly either for liquidation under Chapter 7 or Chapter 11.

“Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations” (TradesReview.com).

“ Chapter 11 is the part of the U.S. Bankruptcy Code describing how a company or debtor can file for court protection. In the case of a corporation, reorganization occurs under the existing management” (TradesReview.com).

Legally, either the debt burden will be relieved to a great extent by terminating the contracts in motion or sell most of its assets. All this will give the business an opportunity to take a new start from the scratch. Mostly when the debts are more than the assets, the business owners are not left with anything because all the assets are confiscated to cover the debts and expenses.

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