Basis for Claim Franchise Agreement Bankruptcy

Owning a franchise is an excellent business opportunity.

Upon purchasing a franchise, the purchaser and business owner enter an agreement. While the purchaser agrees to pay the business owner a certain amount in royalties, the business owner agrees to allow the purchaser to use the company name for profit. When a franchise declares bankruptcy, the franchise owner and company must reconstruct the responsibilities of the franchise in terms of payment. A franchise owner has the right to assume, assign, or reject any responsibilities proposed by the company during and after bankruptcy.

How it Works

When the franchise owner files for bankruptcy, the court implements a freeze on assets that prevents creditors from seizing assets. If a contract between the franchise owner and company is still in effect at the time of filing, then the agreement is considered executable, and the franchise owner may either maintain the contract or opt to reject it and walk away.

Before Bankruptcy

The Bankruptcy Code allows the franchise owner the right to maintain a executable contract between them and the company; even if the franchise owner has defaulted on the agreement. This means that a company does not have the right to terminate an agreement made with a franchise and seize the business solely because the owner files for bankruptcy.

After Bankruptcy: New Rules

Although a franchise owner may keep a contract made with the company as valid, he may not do so without agreeing to new terms and conditions. Primarily, a franchise owner must assure the company that despite bankruptcy, he will fulfill the responsibilities listed in the contract. If a franchise owner finds the new terms of agreement to be overbearing, he may reject the original agreement and free himself from all obligations.

References

• BankruptcyLawFirms.com: How a Franchise Business Declares Bankruptcy