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  1. Bankruptcy Glossary
  2. Executory Contract

What is an 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.