Executory Contracts

[Priceless ProSe]

Hello All! I have been trying to register on this site for almost two weeks and im finally here! Anyways, I am a 28y/o student who filed pro se about a week ago and I have a question regarding executory contracts. Here it goes...

backround- Signed a contract with a local "agency" to work for them (on a paid basis) for approximately 3 yrs once I graduate (June 09), and in return I recieved a "bonus" of 30k (paid already). Spouse lost job and we had to relocate a few months ago, over 100 miles from future "job". Could not keep up with bills and quickly became flat broke as we have no income. Filed BK due to large amount of debt and no income coupled with job loss. I have decided to finish my graduate studies as opposed to working directly after graduation (juune 09) for several reasons: 1) do not like (no longer) the field I was going into, 2) found a grad field i really enjoy, 3) I wish to finish my studies while im reletively young, etc. The relationship between myself and future employer is shot, if I dont get the contract rejected/discharged in the bk they will break it (as either party can do without reason per the contract) immediately and the 30k becomes due in 30 days. The contract was written with no clauses pertaining to BK, and the payments were written as being for "education related expenditure stipend" (but not a student loan, not a loan at all). The contract is actually very short and mostly entails what the parties need to do to keep the contract rolling. I will be "bulletproof" as you all say, for at least the next year. No credit card usage or purchases of any kind (on credit) within the last 7 months. Applied for social services (welfare) yesterday.

Questions-
1)has anyone had any experience with executory contracts?
2)has anyone ever heard of a work contract like this involved in a BK?
3)ANy opinions/pointers/advice? (besides getting a lawyer)
4)Could anyone forsee the trustee forcing me to work in this field (that would be odd right, especially given that they would terminate the contract as soon as we walked out of court)?
5)Does anyone think I should have breached before filing and then filed?
6)If so can I ask for a voluntary dissmissal of my chap 7 and then refile 6 months later after the contract is breached, o does a voluntary dissmissal mean that all debts included in this bk can never be dismmised?

What I thinkI know- An executory contract is one in which both parties have some duty left to be performed, in thier case it is to act as an employer (pay, benefits, etc.) upon my acceptance of a job, in mine it is to work. In a BK the debtor chooses what to do with the contract and the trustee will let them if it is in the debtors best financial interests. If the debtor "rejects" the contract it is considered breached the day before the initial bk filing and the money would be part of the bk. I used lexis-nexis to look up relevant cases but it was always the employer in the deal going BK, also most executory contract precedent was set in the cases of energy companies as they have all sorts of wierd contracts going on. The most likely course of action for the "employer" in my case will be to claim this is not an executory contract because thier only duty is to pay me (which i dont think will stand up).

Sorry for such a long post, I know people always say "youve never heard this one", or "see if you can answer this", but I bet the ratio of posts (not mine) to views on this one is going to be fairly low, unless said posts mearly show opinion such as "get a lawyer" or "go finish the contrac instead of going to school". I have chosen my path because I want to be happy one day, not stuck in a job I dislike to mearly make money. Yes it was a mistake to sign the contract before I was sure, but they have really shown there true colors as well and its not a pretty sight.

[deafbroke]

http://bankruptcy.cooley.com/2006/07/articles/business-bankruptcy-issues/executory-contracts-what-are-they-and-why-do-they-matter-in-bankruptcy/

http://www.doityourselfbankruptcyforms.com/schedule-g.shtml

http://www.calbar.ca.gov/calbar/2cbj/99jul/mclestdy.htm

3RD link has good info. read it all. Consult with attorney. this is not something to do pro se.

DB

[HHM]

Generally, any sort of employment contract is NOT an executory contract. If the employers only duty to you is to pay for your services rendered, that is not an executory contract. A lease is the prototypical example of an executory contract. In any event, it doesn't matter if the contract is executory, it doesn't help you either way, the issue is the nature of the debt that gets created by the breach.

So, the issue, what becomes of the $30K? If I understand what you are saying, is that this company paid $30K, you agreed to work for 3 years, if you do not work the 3 years, then you must repay the $30K. You need to find case law the interprets Section 523(a)(8)(A)(ii) of the BK code
An obligation to repay funds received as an educational benefit, scholarship, or stipend;
If the money really is some sort of education stipened, you may have a tough time getting it discharged. In any event, the burden is on YOU to file an adversarial proceeding and prove that the debt is dischargeable.
I suppose your primary argument would be that the money was "not really" an education stipened or benefit.

[Priceless ProSe]

Yes Indeed

It would appear that I would have to show that the money recieved was not a stipend at all. This may actually be doable, the trick would be finding case law to define the word "stipend". The money was given to me as taxable income, but even on the paystub it was marked as a "educational stipend". The first difference I can see between this money and normal educational monies (stipend, scholarship, etc.) is that a) it was taxable as income (W-2 forms), b) they never verified a need for the money, that is to say normally when you get educational monies they goto the financial aid office and see what is your "unmet need". The money is then given to the school and distributed to the students, which did not happen in this case. Other "work for education money programs" pay back student loans but verify where the money is going (i.e. not on shopping or living expenses). They honestly did not care where the money went, perhaps they used the term "stipend" only for bankruptcy and other legal reasons.

[Priceless ProSe]

Also

When would I need to file an adversarial proceeding? is this something that needs to happen before the 341 or discharge?

thank you for all the help, hopefully once I have learned more I can contribute as much as you guys/gals

[HHM]

Let's back up and look at the timeline, was this money paid to you while you were still in school; if yes, you will probably lose; if no, then you have a good faith shot at arguing that the money was simply a signing bonus and does not fall under an exception to discharge.

As for when to file the AP, anytime before discharge.

In any event, I hope you stick around a share with us how this plays out.

[Priceless ProSe]

The money was paid to me while I was attending school, moreover it was paid in installments every semester. I know it looks rather bleak but, I am still hoping to find a good legal (case law or code) defenition of "stipend/educational stipend". I am sure there has to be some set of rules for what qualifies as an educational stipend. It may matter, the type of orginazation, the "taxabilty" of said funds, whether or not the student had unmet need, etc. I am not saying it isnt true, but it seems hard to believe that just because someone put the words "educational stipend" within a service contract it becomes a stipend (hopefully there is other criteria). A stipend usually implies someone is recieving money during thier education (most common is monies paid for an internship or fellowship I think) but other than this I have never heard of a stipend tha requires service upon graduation. The actual title of the document is "service commitment agreement".

Other thoughts, if I decide to persue this and file an adversarial proceeding will I be laible for there attorney fees if I lose (no stipulation in the contract as to any attorneys/arbitration/etc.)? Do you think they might consider settling to avoid court (although i myself probably am not intimidating)?

Whatever happens I will let you know

[deafbroke]

These forums are a good source for people who have been through bankruptcy and helpful at guiding you through the process. But in my opinion in situations as this one you ned to consult with a bankruptcy attorney about your situation. It could very well be considered an executory contract which has a different set of rules in bankruptcy. An experienced bankruptcy attorneyh is the best source for determining how to handle your case.

DB

[HHM]

Personally, I think you are screwed...if this money was paid while you were in school, any argument you might present to the contrary is quite weak. They were paying a stipened to you while you were in school in anticipation of you working for their agency. Taxiblity, your use of the funds etc, are going to have little relevance, sorry to say.

As to attorney's fees, generally speaking, you are not liable for attorney's fees in BK court if you lose (and you had a good faith basis), but that is a question you will need to take up with a lawyer.

[Priceless ProSe]

I guess my only point was, what makes a stipend a stipend? is it merely the fact that the call it such? If they were to have called it a student loan, would this make it a student loan? I also agree about getting an attorney, except we are flat broke with no income. I am trying to look for legal aid but most places that will see me only handle "simple bankruptcy".

[Priceless ProSe]

But I guess if they cant charge me attorney fees it wouldnt hurt to give it a shot, nothing to lose but a little bit of time.

[Priceless ProSe]

Also regarding getting an attorney for executory contracts, I actually did initially try to hire an attorney in the hopes that my brother would front me the money to pay, I paid the attorney 100 bucks to get started. He took the contract for a week and came back and said he sees no problems listing it as executory being that both parties still had substantial duty left to be performed. My brother was unable to loan the mony so I went and bought NOLO instead, and here I am today. Regardless of what happens this is defenitely a learning experience and i am grateful for the feedback/advice.

[HHM]

The thing is, in the bigger picture of what you are trying to do, it doesn't matter if the contract is executory...so in that respect you have been chasing a red herring.

The reason you list executory contracts in BK is to give the trustee the option to take on whatever obligation YOU had and receive whatever benefit YOU might have received from the other party for the benefit of the BK estate. In consumer cases, the trustee almost always rejects any executory contract becasue there is no benefit to the BK estate (about the only executory contract most individuals may have are car leases). Once the trustee rejects it (i.e. does not assume the obligations), then the contract is back on the debtor and will play itself out in BK.

As for your concern about what makes a stipend a stipend, look at it this way, what makes a student loan a student loan. Aside from the loan application and the contract saying that the loan is a student loan, there are no other facts that make a student loan such a loan; ultimately the money is deposited in your account and you can "use" it however you want.

The facts that hurt you are (1) the work agreement specifically stipulates that the money is an education benefit/stipened, and YOU signed it, (2) the money was given to you while you were in school.
Other questions I would have: (a) have you actually begun working for this agency, (b) did you begin working for them whhile in school. If you haven't actually began working for them, you face a possible fraud hurdle, i.e. you took the money, never provided any service and are now trying to discharge the debt (that isn't going to play well in front of the BK judge).

Taxability is probably not going to help much either, under IRS rules, grants and fellowships "can be" taxable income. Here is where the student's use of the money comes into play. If the money was used to pay tuition, fees, books (i.e. direct education expenses), that portion of the money is NOT taxable. But if the student spends the grant on renting an apartment, then that money IS taxable. So the fact that this stipened of yours is taxable isn't really going to help your argument. The fact that the stipened is taxable, does not necessarily change its nature from education to non-education.

I am not writing this to intentionally discourage you, but to give you an idea of the issues you will have to address and overcome if you proceed. Obviously, you have more facts about the situation than I do.

[Priceless ProSe]

Although I have yet to work a day for the agency I do not see fraud being an issue as I signed the contract with every intention of fullfilling it, and I could prove this as I relocated near the agency after signing (moved about an hour closer) in anticipation of working for them. But the fact that it could raise that suspicion in the eyes of the trustee might be enough to deter me from pursueing this any further. At this moment I can see more risk than benefit in this situation. Unless I can find a really good foothold on this (case law, etc.) I can forsee them terminating the contract post BK, and filing for judgement when my time to pay is up (ugh, meaning interest will begin as well) . There is no stipulation in my contract regarding interest for repayment but i think after a judgement in CA they can get like 10 percent a year (cross that road later i guess).

In regards to the executory contract, the reason I thought it would be important to determine whether or not it was one is that, BK courts have the power to let me reject these but I am under the impression that if the contract is deemed not to be executory then the BK court would not be able to let me reject it. Then if I did it now (breach/reject/whatever) it would have been done post filing and could not be discharged (the 30k) regardless of whether or not it was a "stipend".

[HHM]

No offense, but you are woefully misinterpreting what the BK courts mean by rejecting executory contracts. In fact, you as the debtor, do not have the right to reject, it is the trustee that has the right to reject executory contracts, but as I explained above, that rejection is relative to the BK estate. Also, I am not convinced this contract would be considered executory, but again, it really does not matter. Let's even assume you have the right to reject, all you are doing is rejection "your" obligation, which does not mean there are not consequences for doing so.

You should do a search in the forum for discussions of fraud, in BK, fraud does not require explicit intent, and I think you are deluding yourself if you think what you are planning is not fraud, you TOOK $30K from this agency, and will not even attempt to live up to your obligations. I don't mean to sound harsh, but any half-way decent attorney will make mince-meat out of you in court.

I really only see two options for your.
1. pay back the $30K
2. Go work for this agency.