Home>What are executory contracts and how do they work?

What are executory contracts and how do they work?

June 28, 2022

By Diane Drain Attorney & Retired Law Professor

An executory contract is a legal word that refers to a contract between two parties that includes an obligation owed by at least one of them (such as a car lease or a residential lease). A lease agreement for a car or a home is the most typical example.

An executory contract can be assumed or rejected in Chapter 7 bankruptcy by the debtor or the trustee. Before the court delivers a bankruptcy discharge, which normally occurs 90 days after filing, a debtor must decide what to do with an executory contract.

A vehicle leasing is an example of an executory contract. If the debtor does not wish to keep the leased vehicle, he can return it to the leasing firm and be released from any further obligations. If the debtor wishes to keep the car, he or she must assume the lease and make timely payments. The lease assumption must be signed by both the debtor and the creditor, but the judge’s approval is not required. The leasing company can repossess the car if the debtor cannot make the lease payments, but it cannot sue the debtor for any deficiency.

By |Published On: June 28th, 2022|Last Updated: July 28th, 2022|

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Diane L. Drain - Bankruptcy LawyerDiane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

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