Sometimes, a debtor will still be in the process of performing a contract when he or she files for bankruptcy. If the contract is still at a stage where both the debtor and the contracting party have not finished their performance, the liquidator often has the choice between continuing the contract or canceling it completely. If performance on the contract would result in further assets for the debtor to distribute to creditors, it is in court’s interest to allow the debtor to continue performance of the contract.
In many cases, the largest obstacle to collecting a debt is simply that the debtor does not have the money to pay. Therefore, even after obtaining a judgment and filing for compulsory execution, if the debtor doesn’t have money to pay the debt, there is little hope of a full recovery. In situations where it seems that the debtor simply does not have enough money to satisfy a debt, it may be more cost effective to approach the matter through negotiation.
Establishing a payment plan with a debtor has several advantages. First, by breaking up a larger payment into smaller installments, it allows the debtor to make more realistic payments and removes the temptation to stop payment because the value of the debt is too high to pay off entirely. Additionally, being able to show that a debtor has may progress in making installment payments toward the full value of the debt can be used as strong evidence in court that the debtor acknowledges the full value of the debt and has promised to pay.
One of the requirements for a corporation to enter bankruptcy in Japan is that it be “balance sheet insolvent.” Balance sheet insolvent means that even if the corporation has assets on hand, it cannot make full payment to all of its creditors even by selling all of its remaining assets. In essence, the company’s debt outweighs its assets.