Finance Guide | Finance | Bankruptcy | Personal Finance

US Bankruptcy Code – Executory Contracts

In case a business has or is planning to file a case with the US bankruptcy court under the chapter – 11 of US bankruptcy code, the management of the business or the company must be well aware of a feature of the chapter -11 bankruptcy case, that cancels Executory contracts. This feature of a chapter – 11 US bankruptcy case is detailed in the following section.

Chapter – 11 Executory Contracts

When a business files a case under the chapter – 11 of the US bankruptcy code, the US bankruptcy court that is preciding over the case may discontinue some of the contracts of the business or the company. These contracts known as the Executory contracts, will be rejected if it is felt by the court that cancelling those contracts will be financially favorable to both the company and it’s creditors.
Executory contracts may include anything from – supply, labor or land lease contracts. In an event such a Executory Contract is rejected, the other party to the contract becomes the unsecured creditor of the debtor.
The definition of contracts, that fall under the realm of executory contracts may be different from region to region viz. in some states, a contract for deed may be considered an Executory Contract, while the same may not be considered as an Executory Contract in some other states. A good bankruptcy lawyer who specializes, in the law of a particular state may tell beforehand, which contracts of the company under the current scenario may fall in the category of Executory Contracts and hence may get rejected, if the company files a chapter – 11 of the US bankruptcy court.