Settlement Agreement Clause
(Bankruptcy Effect on Released Claims)


This form is a clause in a settlement agreement addressing the release in a settlement agreement when a bankruptcy is filed. This template includes practical guidance and drafting notes. Settlement agreements, and the certainty that is supposed to be created by such agreements, are subject to several risks in the context of a bankruptcy filing by one of the settling parties. There is the risk that the party against whom the claim has been asserted will obtain a release in exchange for a promise to pay (e.g., through a structured settlement) and then file for bankruptcy and discharge the payment obligation. The releasing party should seek to include a provision that preserves its original claims in the event that a bankruptcy or other insolvency proceeding is filed and it does not receive or is not allowed to retain the full amount of the settlement payment. For more information, see Settlement Agreements in Bankruptcy.