The letter X in the Bankruptcy Alphabet stands for Executory contracts. (I know, it’s a stretch, but how many words begin with X?). An executory contract in bankruptcy language refers to a contract that is signed, and valid, but has not been completed yet. The best example of this is a lease. The lease is signed before the bankruptcy, and the parties are supposed to perform, i.e., the person leasing pays, and the person or company making the lease allows the use of the property.
Good examples of leases are car leases and real estate leases. You could have a car lease when you file a bankruptcy case, and then you’ll have certain options on what to do during and after the bankruptcy.
In simple consumer cases, what happens to these executory contracts in bankruptcy, and what can a Debtor (person who files for bankruptcy) do? You’d have the option to “assume” the lease (keep making the payments, and keep the property (car or real estate). Or, you could ”reject” the lease and stop paying and give up the property. Other kinds of leases, like an apartment lease, are usually assumed without even saying anything in the bankruptcy, because people just continue to make their rent payments and the landlord allows them to stay. If a person is behind in their rent, they do have certain protections in bankruptcy, and options to either catch up and stay, or to move and “reject” the lease.
In business cases, where the bankruptcy trustee is more active in taking over a business, running it or selling it, the trustee can use these powers to continue running certain parts of the business, and maximizing the value of the business. That way, the trustee can maximize the amount of money to be paid to creditors.
Executory contracts and unexpired leases are an important and complex area of bankruptcy law. If you have a lease, and have debt issues, you need to call an experienced Bankruptcy Attorney to review all of your options.
We have offices in Chicago Loop, Oak Lawn, Skokie, and Waukegan to serve you.
Daniel J. Winter
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