Can Bankruptcy Affect My Contract with the Government?

Answers from a Maryland Bankruptcy Lawyer

The effects of the federal government shutdown continue to be felt both in the Beltway and across the country. Although federal employees faced the most direct difficulties from the lapse in fund appropriations, thousands of government contractors undoubtedly suffered losses as well.

In these dire economic times, an increasing number of individuals are turning to bankruptcy as a way of reworking their finances and getting relief from crushing debt. However, some individuals may hesitate to pursue bankruptcy relief out of a concern that they will lose their government contracts.

Can the Government Deny My Contract Because I Filed Bankruptcy?

The bankruptcy code states that “a governmental unit may not deny, revoke, suspend or refuse to renew a [contract]…to a person that is or has been a…bankrupt or debtor under the Bankruptcy Act.”

The law makes it clear that a past or ongoing bankruptcy cannot be used as the basis for revoking or refusing to renew any kind of agreement with a service provider or merchant. Additionally, contractors who have current agreements with the government do not have to fear losing the contract and its accompanying revenue if they decide to file for a Chapter 7, Chapter 11 or Chapter 13 bankruptcy case.

Bankruptcy Remains a Viable Option for Businesses

These protections extend to all varieties of businesses dealings with the government, including computer services, catering, transportation and staffing. Defense contractors can also benefit, as evidenced by a case in which the Air Force was penalized for refusing to renew a contract with a debtor in bankruptcy.

Times are rough for many people who work for and do business with the government. It is important to remember that bankruptcy can be a legal and viable solution to financial troubles. Although Chapter 13 cases are typically used for personal debts, the law may allow a person to restructure business debts in a Chapter 13 if the debts were accrued in service of the business that the individual owns.

I Need a Washington DC and Maryland Bankruptcy Lawyer

Do you need help finding a solution to personal and business debt? We offer a free consultation to anyone in need of legal counsel. For help, call our office at (202) 483-6070 to speak with an experienced Washington DC bankruptcy lawyer.



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