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The bankruptcy process
Executory contract
An executory contract is a contract under which both parties still have material duties to perform. 1
Talk to a lawyerHow are executory contracts treated in bankruptcy?
Bankruptcy puts these contracts, and unexpired leases, to a choice. Subject to the court's approval, the trustee may assume one or reject it. To assume a contract means agreeing to keep performing the obligations under it. 1
Keeping a contract that is in default has a price. The trustee may not assume it unless the default is cured or there is adequate assurance of a prompt cure, the other side is compensated for its actual money losses, and there is adequate assurance of future performance. 2
Debtors list them: a schedule of executory contracts and unexpired leases is among the papers filed with the petition. 3
Chapter 7 has a default outcome. An executory contract or an unexpired lease of a home or of personal property is treated as rejected if the trustee does not assume or reject it within 60 days after the case is filed, unless the court gives more time. 2
When a lease of personal property is rejected or not assumed in time, the leased property leaves the estate and the automatic stay on it ends. An individual Chapter 7 debtor may tell the lessor in writing that they want to assume the lease, and the lessor may choose whether to agree. 2
Common questions
What is the difference between an executory and an executed contract?
An executory contract still has material duties left on both sides. Once both sides have fully performed, there is nothing left for the trustee to assume or reject. 1
Where do I say what I plan to do with a lease?
In Chapter 7, the statement of intention tells the court and creditors what an individual debtor plans to do with property that secures a debt and with unexpired leases of personal property. 1
Who decides whether a contract is assumed?
The trustee may assume or reject it, subject to the court's approval. 1
Sources
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