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Liquidated damages provisions of agreements set forth in advance the amount of damages the breaching party must pay in the event of breach. These provisions are intended to avoid often costly and lengthy litigation precipitated by a contractual breach. The enforceability of these provisions, which is a question of state law, however, is frequently challenged in bankruptcy cases and other forums.

This article discusses bankruptcy cases in which the liquidated damages provision was deemed enforceable, cases where the court found the provision unenforceable and highlights key takeaways and best practices for protecting liquidated damages clauses from invalidation.

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Camisha is the Founder and Managing Member of Simmons Legal. She is dedicated to assisting parties in protecting their interests in corporate restructuring, creditors’ rights, real estate transactions, other business transactions, and litigation matters.

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