Executory Contracts And Leases In Bankruptcy

Section 365 of the Bankruptcy Code allows a debtor in bankruptcy to assume, assign, or reject executory contracts and unexpired leases. What is an executory contract? An executory contract is interpreted by courts to mean a contract where there remain unperformed obligations by both parties at the time the bankruptcy is filed. For example, a supply contract is an executory contract because the supplier has a continuing obligation to supply the goods, while the debtor has a continuing obligation to pay for those goods; on the other hand, a promissory note is a non-executory contract because only the borrower has a continuing obligation to pay. Moreover, only true, unexpired leases can be assumed or rejected in bankruptcy; for example, lease of personal property may actually be a security agreement as opposed to a true lease.