Legal Definitions - ipso facto clause

An ipso facto clause is a provision in a contract that outlines the consequences that will occur if one of the parties involved declares bankruptcy. This clause is also known as a bankruptcy clause.

For example, a contract between a landlord and a tenant may include an ipso facto clause that states that if the tenant files for bankruptcy, the lease will be terminated immediately. Another example is a loan agreement that includes an ipso facto clause stating that if the borrower files for bankruptcy, the lender has the right to demand immediate repayment of the loan.

These examples illustrate how an ipso facto clause can protect the interests of the non-bankrupt party in a contract. By including this clause, the parties can agree on the consequences of bankruptcy before it happens, which can help to avoid disputes and uncertainty in the event of bankruptcy.