Contracts
A Connecticut purchase contract is signed by both parties. The seller then files for bankruptcy. What effect does the bankruptcy filing have on the purchase contract?
AThe contract is automatically voided by the bankruptcy filing
BThe bankruptcy stay prevents the sale from proceeding; the bankruptcy trustee must decide whether to assume or reject the contract✓ Correct
CThe buyer may terminate the contract and get their earnest money back immediately
DThe bankruptcy has no effect on real estate contracts
Explanation
When a seller files for bankruptcy, the automatic stay stops most legal and financial proceedings, including real estate closings. The bankruptcy trustee reviews executory contracts (including purchase agreements) and decides whether to assume (complete) or reject them.
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Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
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