October 17, 2018 Articles

Is a Covenant Not to Compete Enforceable in Bankruptcy?

At least two fundamental disagreements have arisen in the courts.

By Kim K. Hillary

Courts have expressed varying views on whether covenants not to compete  are enforceable against debtors in bankruptcy. A review of the varying case law on the subject demonstrates that at least two fundamental disagreements have arisen. First, courts disagree on whether a debtor can discharge its obligations under a non-compete by rejecting it as an executory contract under 11 U.S.C. § 365. Second, courts disagree on whether a debtor’s obligations under a non-compete are dischargeable debts within the meaning of 11 U.S.C. § 101(12).

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