Does the Embassy Suites Franchise Agreement's provision for termination upon bankruptcy have any potential issues under federal bankruptcy law?

According to the 2025 Embassy Suites Franchise Disclosure Document, the franchise agreement contains a provision that allows Embassy Suites to terminate the agreement if the franchisee declares bankruptcy. However, the FDD explicitly states that this provision may not be enforceable under federal bankruptcy law, specifically referencing 11 U.S.C. Section 101 et seq. This section of the U.S. Code addresses bankruptcy-related matters.

This acknowledgment in the FDD is significant for potential Embassy Suites franchisees. Federal bankruptcy law often protects debtors from certain actions by creditors, including the termination of contracts. The inclusion of this statement suggests that Embassy Suites is aware that a court might not uphold the termination clause in the event of a franchisee's bankruptcy filing. This could prevent Embassy Suites from immediately reclaiming the franchise and allow the franchisee an opportunity to reorganize or sell the business under bankruptcy protection.

Prospective franchisees should consult with a legal expert to fully understand their rights and obligations under federal bankruptcy law, especially in relation to the franchise agreement. While Embassy Suites acknowledges the potential unenforceability of the termination clause, the specific circumstances of a bankruptcy case can influence the outcome. It is important for franchisees to be aware of the risks and protections afforded by bankruptcy law and how they apply to their investment in an Embassy Suites franchise.