The bankruptcy petition includes a section for executory contracts and unexpired leases. I have been asked by several debtors what is an executory contract and unexpired lease? The simple answer is that an executory contract is an agreement between two parties where neither party has fulfilled its obligations under the contract. An unexpired lease is an example of an executory contract. Although the obvious items are vehicle and apartment leases, any existing contract or lease must be listed. The most typical types of contracts and leases aside from vehicle and apartment leases are cellular phone contracts, internet and cable contracts, gym memberships, rent-to-own contracts, etc. Once listed, a debtor must complete a statement of intention for each and identify whether the lease or contract will be assumed or rejected. If a contract is rejected, the debtor cannot gain from the contract, but the debtor is released from any burdens imposed by the contract. If a lease is rejected, a debtor is relieved of the obligation to pay, however the debtor must return the leasehold.

Obviously, creditors prefer that contracts are assumed and that the pre-existing agreement remains in place after bankruptcy. However, if a debtor is not able to meet the obligations under the contract it should be rejected. This is also an opportunity for a debtor to negotiate a better contract with the creditor or seek out competitors who can offer better terms. Debtors must keep in mind however, if a financial background check is required, the existence of a bankruptcy on your credit history may hinder efforts to obtain a new contract. Although this can apply to any contract, it will likely only affect contracts involving significant assets such as an apartment or vehicle. Given the competition for sales for smaller contracts such as cellular phone and internet connections, a prior bankruptcy is not likely to affect a debtor’s ability to obtain new service.