27 Jul At-Will Contracts Are Not Executory Contracts
Executory contracts get special treatment in bankruptcy. They are roughly defined as a contract where both parties still have to perform – think lease – unlike a loan where the lender’s obligations ended when the loan was made.
Executory contracts need to be listed in Schedule G, giving notice of the bankruptcy case to theother party to the executory contract (and the trustee). A Chapter 13 debtor or a Chapter 7 trustee can assume an executory contract if it is not for personal services or a loan. (An opera singer’s contract to perform at the Metropolitan Opera House is the common example of an executory contract for personal services.)
The 13 debtoror trusteemust cure, or provide adequate assurance of the ability to cure, any defaultwhen assuming the contract. The contract isrejected if it is not properly assumed, and the debtor does not have to continue paying under it. The automatic stay ends as to any leased personal property(think car) upon rejection, although a Chapter 7 debtor can ask the lessor if the debtor (not the bankruptcy estate) can assume the lease.
Post-filing payments under anexecutory contract must be made until the contract is assumed or rejected.
Executory contracts commonly include leases, whether residential or for a car. They do not include at-will contracts, perhaps for employment or for storage.
And that’s the point of all this. (Wondering when I would get to this?) There’s no obligation for either party to continue performance in an at-will contract, which is a key element in the definition of an executory contract. Parties to at-will contracts do not get notice of the bankruptcy filing. There’s no need for a formal assumption to avoid rejection. With an at-will contract, there’s just nothing to assume (or reject).The parties continue performing, or not, as they each see fit.
Assumption of an executory contract does NOT mean that the debtor can be sued for a later breach. Assumption is not reaffirmation. It merely reflects an agreement abouta debtor’s continued performance and benefits of an assumed executory contract.
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