Under the Belocal franchise agreement, what specific bankruptcy laws trigger automatic termination if a voluntary petition is filed?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
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- B. Automatic Termination. Franchisee shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee if:
- (1) Franchisee becomes insolvent or makes a general assignment for the benefit of creditors;
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, the franchise agreement will automatically terminate if the franchisee files a voluntary petition under any section or chapter of federal bankruptcy law. This also applies to any similar law or statute of the United States or any state. This means that if a Belocal franchisee seeks bankruptcy protection by voluntarily filing, the franchise agreement can be terminated by Belocal without notice.
This provision is a significant consideration for prospective franchisees. Bankruptcy laws are designed to provide a fresh start for businesses and individuals, but this clause in the Belocal franchise agreement could prevent a franchisee from utilizing those protections without losing their franchise. Franchisees should be aware that filing for bankruptcy, even as a protective measure, could result in the immediate loss of their business.
It's important to note that addenda to the franchise agreement for certain states, such as Maryland, indicate that such termination-upon-bankruptcy provisions may not be enforceable under Title 11 of the United States Code Section 101. This highlights the importance of consulting with legal counsel to understand the enforceability of these clauses in the franchisee's specific jurisdiction. Prospective franchisees should discuss this with Belocal to understand the implications in their specific state, as state laws may offer different protections.