What is an Executory Contract?

December 30, 2013

Schedule G of the Official Bankruptcy Forms is entitled, “Executory Contracts and Unexpired Leases.” Schedule G confused the heck out of pro se debtors and newbie bankruptcy attorneys. An executory contract is simply a contract in which one or more parties have remaining obligations. A way of rephrasing an executory contract is “contract not completely performed.”

Most unfulfilled contracts are executory, and must be listed on the debtor’s Schedule G. Examples of executory contracts and unexpired leases include:

  • Auto lease
  • Apartment lease
  • Cell phone contract
  • Cable or satellite TV contract
  • Business contracts
  • Service contracts
  • Satellite radio contract
  • Business real estate or equipment lease
  • Contracts of sale for real estate, such as a contract for deed or lease-purchase agreement

The parties to an executory contract are listed on Schedule G, but are not sent notices during the bankruptcy case (because they are not creditors). If the debtor has taken money and not performed duties under the contract (such as an advance), the other party to the contract is treated as a creditor in the bankruptcy. Creditors are listed on Schedule F and the Creditor Matrix, and receive notices from the bankruptcy court.

Filing bankruptcy (by itself) does not terminate an executory contract, regardless of the contract terms. Section 365(e)(1) of the Bankruptcy Code expressly invalidates ipso facto clauses (Latin for “by the fact itself,” and means that filing a bankruptcy case triggers a default in the contract). The debtor is given the option of continuing or rejecting an executory contract during the bankruptcy case. Many debtors with burdensome cell phone contracts are able to walk away from the contract and discharge any debt, including termination fees.

Since executory contracts are so common, a blank Schedule G is a red flag to a bankruptcy trustee. The federal bankruptcy process demands honesty and accuracy from debtors, including a fair and honest accounting of debts.

If you are considering bankruptcy or have any further questions, please contact the experienced attorneys at Fears | Nachawati for a free consultation. Contact us by calling 1.866.705.7584 or send an email to fears@fnlawfirm.com

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