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Executory Contract in Ch 7 (personal services)
I have a client who is an unincorporated contractor. Client is a party to an executory construction contract and is due to perform services in the future, in exchange for payment of $25K.
Upon completion of work, debtor would need to pay subcontractors $20,000, plus cover additional costs of around $5,000, so debtor anticipates there is no profit left in the contract. However, client would still like to do the work in order to maintain goodwill with customer and subcontractors and avoid any problems with his bond or CSLB. There are no exemptions available to protect any of the $25,000 in proceeds, so I want to make sure my analysis is correct.
I am assuming that:
1. Proceeds of the contract are not property of the estate, per 541(a)(6), since services are to be performed postpetition.
2. Trustee would not want to assume the contract, since doing so would not raise any money for the estate [or, alternatively, assumption would be prohibited by 365(d)(1) if this is considered an unassignable (non-assignable?) contract per 365(c)(1)].
3. Therefore, debtor can safely file the case without claiming an exemption for the unearned contract revenues (assuming the executory contract is properly scheduled and described).
But I have two questions:
1. Any problems with assumptions 1, 2 or 3?
2. If Trustee rejects the executory contract, could debtor's customer refuse to allow debtor to perform, treat the executory contract as rejected, refuse to pay debtor the unpaid balance and relieve debtor of further responsibilities under the contract, or would debtor still have the right to enforce the contract against customer after Trustee rejection?
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