Originally Posted by
winglet
If only it were that simple. Sorry but bankruptcy law is much more complex than that. These "contract termination" clauses were made unenforceable by the rewriting of the Bankruptcy Code in 1979. They are still commonly placed automatically in contracts to provide protection in the off chance the Bankruptcy Code changes within the lifespan of the contracts.
These unenforceable
ipso facto provisions are covered by U.S. Bankruptcy Code:
11 U.S.C. §541(c)
(c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law -
(A) that restricts or conditions transfer of such interest by the debtor; or
(B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property.
(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
11 U.S.C. §365(e)(1)
(e)
(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement.
Don't worry, it will all come out in the wash.
winglet
you are right but in the case of airlines the health of the regional directly affects the majors "ability to conduct business." The credit card companies normally pay out when the transaction is processed and absorb the risk if the company was to go bankrupt. The credit card companies have won precedence when dealing with companies like this. They are allowed to not pay the service provider until the actual service has been completed. It really does affect the bottom line of these airlines. If a regional feeder is in bankruptcy or very close to it the credit card companies get very tight with their money which means that the main service provider is handicapped and can contractually enforce the bankruptcy clause in their contracts. an example would be the ACA vs some fueling company a couple of years ago.
you found some good info though.