Executory Contract

Category: legal

A contract where both the debtor and the other party still have significant unperformed obligations at the time of bankruptcy.

Executory contracts are usually commercial leases, software licenses, or supply agreements. In Chapter 11, the debtor has a unique superpower: they can "assume" (keep) the good contracts and "reject" (break) the bad ones without facing traditional breach-of-contract lawsuits.

Common Examples

• The retailer used the bankruptcy code to reject executory contracts for thirty underperforming mall locations, erasing decades of future rent liabilities.
• If the debtor chooses to assume an executory contract, they must "cure" all past-due defaults to bring the account totally current.