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Executory Contract

Executory Contract

An executory contract is one where some of the obligations or "performance is due to some extent by both parties" (the person or entity that filed bankruptcy and a third party) have not been completed to fulfill the terms and conditions of the contract. The most common type of executory contracts includes equipment leases and property leases (the Bankruptcy Code does not specifically define "executory contracts"). The definition of such contracts must be determined on a case by case basis and is generally determined at the beginning of the bankruptcy process when the petition is filed. Executory contracts are property of the Bankruptcy Estate and under the administrative control of the trustee.

Executory contracts can be rejected, affirmed, assumed or surrendered by the debtor in possession or the Trustee. The trustee's goal, if they terminate the executory contract, will be to reduce the financial impact of the default. Assumptions must be approved by the bankruptcy court. Rejections can occur automatically (if the contract is not assumed in a specified time period). An Automatic Stay is commenced immediately upon filing a bankruptcy petition and protects the debtor's rights under an executory contract.

More Help on Executory Contract

  • Automatic Stay - If a petition is filed under Chapter 7, Chapter 11 or Chapter 13 Bankruptcy Section 362(a) of the Bankruptcy Code, it initiates an automatic stay which is basically an injunction against creditors to cease any activities which advance the interest of the creditor against the debtor. - read more

  • Bankruptcy Estate - The bankruptcy estate can includes all of the assets a Debtor has which can be liquidated by a court-appointed trustee in the bankruptcy liquidation process. - read more

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