Executory Contract & Unexpired LeasesIf you are involved in a bankruptcy case, it may be beneficial to have an executory contract in certain situations. An executory contract is one in which both parties will have some type of obligation that is yet to be performed. There are a number of different types of executory contracts.
Once an executory contract is assumed, any default must be effectively cured or there must be adequate assurance made that the default will be quickly cured. Further, the non-debtor party must be compensated for actual loss that may have occurred because of the breach.The debtor or trustee who is assuming the lease is tasked with giving adequate assurance of future performance under the contract. If the bankruptcy proceeding is a chapter 7 filing, the trustee shall assume an executory contract within 60 days of the date of filing. If it is not assumed within the 60 days, it is automatically rejected. In a chapter 11 and chapter 13 cases, there is no set time limit for assumption or rejection. In a case of nonresidential, real property, the time limit is 120 days. There is the option of receiving a one 90-day extension for cause. If it is not assumed within 210 days, the debtor must obtain the landlord's consent for any additional extensions.According to 11 U.S.C. § 365, the trustee, subject to court's approval, may assume or reject any executory contract or unexpired lease of the debtor. In addition, section (b)(1) states that if there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee:(A) cures, or provides adequate assurance that the trustee will promptly cure, such default other than a default that is a breach of a provision relating to the satisfaction of any provision (other than a penalty rate or penalty provision) relating to a default arising from any failure to perform nonmonetary obligations under an unexpired lease of real property, if it is impossible for the trustee to cure such default by performing nonmonetary acts at and after the time of assumption, except that if such default arises from a failure to operate in accordance with a nonresidential real property lease, then such default shall be cured by performance at and after the time of assumption in accordance with such lease, and pecuniary losses resulting from such default shall be compensated in accordance with the provisions of this paragraph;(B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and(C) provides adequate assurance of future performance under such contract or lease.If you have questions related to executory contracts and unexpired leases, it is best to work with professionals. The attorneys at 702 DEFENSE have the experience and skills necessary to help you with the bankruptcy process.