Rejection

How it works

An executory contract is one under which both sides still have material duties to perform. The trustee may assume a contract or lease, which means keeping it, or reject it. Either choice needs the court's approval. 1

Rejection counts as a breach, and the breach is generally treated as having happened just before the bankruptcy was filed. The other party's claim for that breach is then handled the same as a claim that arose before the filing. 1

Chapter 7 has a default rule. If the trustee does not assume or reject an executory contract, or a lease of a home or of personal property, within 60 days after the order for relief, it is deemed rejected unless the court sets more time. In a case you file yourself, the order for relief is the filing. 1 2

For a lease of personal property, such as a leased car, rejection means the property leaves the bankruptcy estate and the automatic stay no longer protects it. An individual Chapter 7 debtor may tell the creditor in writing that the debtor wants to assume the lease. The creditor may agree, and may require any default to be cured. 1