If your business is in bankruptcy — or preparing for that possibility — one of the biggest practical questions is often surprisingly simple: what happens to the deals that are still in progress? That can mean a commercial lease, a vendor agreement, a franchise deal, a software license, a supply contract, or another arrangement where both sides still have work left to do.
In bankruptcy, those ongoing deals often fall into a category called executory contracts and unexpired leases. The rules around them can shape whether a business keeps key locations, preserves important relationships, exits expensive obligations, or transfers valuable agreements to a buyer. In general terms, this part of bankruptcy law can have a major effect on day-to-day operations and on the overall value of a restructuring.
This beginner’s guide explains the basics in plain English. In this post you’ll learn what executory contracts and leases are, what “assumption” and “rejection” mean, why timing matters, how cure costs and assignment issues come into play, and where business owners often run into expensive surprises. If you want a broader overview of the moving parts, this deeper explanation of how bankruptcy handles ongoing contracts and leases can help round out the picture.
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The Bankruptcy Code allows a trustee or debtor in possession, with court approval, to assume or reject an executory contract or unexpired lease under 11 U.S.C. § 365. The U.S. Courts’ Chapter 11 Bankruptcy Basics page also notes that litigation over executory contracts and unexpired leases is a common feature of Chapter 11 cases.
The Code does not provide a single, tidy definition of “executory contract.” But in everyday bankruptcy practice, the phrase usually refers to a contract where important performance remains due on both sides. A lease is the easiest example: the tenant still has to pay rent, and the landlord still has to provide possession and lease-related performance.
Common examples may include:
A fully completed deal usually is not executory. If one side has already performed everything and only payment remains, the analysis may look different.
Executory contracts and leases matter because they often sit at the center of the business itself.