11 U.S.C. § 365 — Executory contracts and unexpired leases

(a) The trustee runs the debtor's ongoing contracts and unexpired leases. With the court's approval, the trustee can "assume" (keep) or "reject" (cancel) almost any of them. Two other sections (765 and 766) and the rules in (b), (c), and (d) below can limit this power.

(b) If the debtor^* already broke ("defaulted on") a contract or lease, the trustee can only assume it if, at the time of assuming, the trustee: (A) fixes the default or gives solid assurance it will fix it soon — except for certain non-money defaults under a real estate lease that are impossible to cure by action after assumption. But if the default was a failure to keep operating under a nonresidential real estate lease, the trustee must fix that failure going forward and pay for any money losses it caused; (B) pays, or promises to promptly pay, the other party's actual money losses from the default; and (C) gives solid assurance it will keep performing in the future.

These cure-and-assure requirements do not apply to a default caused by: (A) the debtor's insolvency or financial condition at any point before the case closes; (B) simply filing for bankruptcy; (C) a trustee or custodian^* being appointed or taking control before the case began; or (D) a penalty charge tied to the debtor failing to do non-money duties under the contract or lease.

For a shopping-center lease, "solid assurance of future performance" specifically means assurance that: (A) the rent will keep coming from a reliable source, and if the lease is being handed to someone new, that person's finances and track record are similar to the debtor's when it first became the tenant; (B) any rent based on a percentage of sales won't drop substantially; (C) keeping or transferring the lease won't break any of its terms — such as rules on location, use, exclusivity, or trade area — or any related shopping-center agreement; and (D) keeping or transferring the lease won't upset the mix or balance of stores in the center.

Even before assuming a defaulted lease, the trustee cannot force the landlord to keep supplying services or supplies unless the trustee pays for them under the lease's terms.

(c) The trustee cannot assume or hand off a contract or lease — even one that normally bans transfers — if: (1) the law lets the other party refuse to deal with anyone but the debtor, and that party won't agree to the switch; (2) the contract is a promise to lend the debtor money, extend credit, or issue the debtor's stock; or (3) it is a nonresidential real estate lease that was already legally terminated before the bankruptcy case began.

(d) Deadlines to decide: (1) In a Chapter 7 case, the trustee must assume or reject a lease of residential real estate or of personal property within 60 days of the case starting, or a bit longer if the court allows more time for good cause within that same 60 days. Otherwise, the lease is automatically rejected. (2) In Chapter 9, 11, 12, or 13 cases, the trustee may assume or reject such a lease any time before the reorganization plan is confirmed, though the court can set a deadline if someone with a stake in the lease asks. (3) For a nonresidential real estate lease, the trustee must keep meeting all of the debtor's obligations under it (except the cure-related ones in (b)(2)) from the start of the case until the lease is assumed or rejected. The court can give more time to meet an obligation that comes due within the first 60 days, but never past that 60-day mark. This doesn't change the trustee's duties under (b) or (f), and the landlord accepting payments doesn't give up any of its rights. (4) A nonresidential real estate lease is automatically rejected — and the trustee must hand the property straight back to the landlord — if the trustee hasn't assumed or rejected it by the earlier of 120 days after the case starts or the date the reorganization plan is confirmed. Before that 120 days runs out, the court can extend it once by 90 days if the trustee or landlord shows good cause; any further extension needs the landlord's written consent every time. (5) In a Chapter 11 case involving a lease of personal property (other than property an individual leases for personal or household use), the trustee must keep meeting the debtor's obligations that first come due 60 or more days after the case starts, until the lease is assumed or rejected — unless the court, weighing fairness, orders otherwise. This doesn't change duties under (b) or (f), and the landlord accepting payment doesn't waive its rights.

(e) A contract or lease cannot be ended or changed — and no one's rights under it can be ended or changed — just because of a clause that triggers on: (A) the debtor's insolvency or financial condition before the case closes; (B) the bankruptcy filing itself; or (C) a trustee or custodian being appointed or taking over before the case began. This protection does not apply if: (A) the law lets the other party refuse to deal with the trustee or a new assignee, and that party won't agree; or (B) the contract is a promise to lend money, extend credit, or issue the debtor's stock.

(f) Even if a contract or lease bans or limits transfers, the trustee can still assign it (subject to the limits in (b) and (c)) as long as: the trustee first properly assumes the contract or lease, and gives solid assurance that the new party will perform in the future — whether or not there was ever a default. A clause that would let someone cancel or change the deal just because it was assigned does not work; assuming or assigning the contract cannot by itself trigger that kind of clause.

(g) Rejecting a contract or lease counts legally as the debtor breaking it. That breach is treated as happening: (1) right before the bankruptcy petition was filed, if the contract was never assumed; or (2) if it had been assumed, then either at the moment of rejection (if the case was never converted to another chapter), or, if the case was converted, right before the conversion (if assumed before converting) or at rejection (if assumed after converting).

(h) If the trustee rejects a real estate lease where the debtor is the landlord: (1)(A) the tenant can treat the lease as ended, if the rejection would count as a lease-ending breach anyway under its terms, other law, or an agreement; or, if the lease term has already begun, the tenant can instead choose to keep its rights under the lease — rent terms, possession, quiet enjoyment, subletting, and so on — for the rest of the term and any renewal, so long as those rights would hold up outside bankruptcy. (B) A tenant who keeps its rights this way can subtract, from future rent, the value of any harm the debtor's failure to perform causes after rejection — but has no other claim^* against the estate for that harm. (C) If the lease is in a shopping center and the tenant keeps its rights, terms about trade area, location, use, exclusivity, or store mix still apply and are still enforceable outside bankruptcy. (D) "Tenant" here also covers a permitted successor, assignee, or mortgage holder. (2) The same choice applies to a timeshare buyer if the debtor sold the timeshare: the buyer can treat the plan as ended, or, if the timeshare term has begun, keep its rights for the rest of the term. A buyer who keeps its rights can subtract post-rejection harm from what it owes, but has no further claim against the estate.

(i) If the trustee rejects a contract to sell real estate or a timeshare and the buyer is already in possession, the buyer can either treat the contract as ended or stay in possession. (1) A buyer who stays: (2)(A) must keep making the payments the contract requires, though it can subtract any harm caused by the debtor's failure to perform after rejection — with no other claim against the estate; and (B) the trustee must still hand over title as the contract requires, but is excused from every other duty under it.

(j) A buyer who treats the contract as ended under (i), or someone whose contract to buy the debtor's real estate is rejected while they are not in possession, gets a lien on the debtor's property to recover any part of the price already paid.

(k) Once the trustee assigns an assumed contract or lease to someone else, neither the trustee nor the estate is liable for any breach that happens after that.

(l) If an assigned lease has the debtor as tenant, the landlord can demand a security deposit similar to what it would normally require from a new, similar tenant.

(m) For this section, plus sections 541(b)(2) and 362(b)(10), "leases of real property" also covers rental agreements for using real estate.

(n) If the trustee rejects a contract where the debtor licenses out intellectual property, the licensee can choose: (A) treat the license as ended, if the rejection counts as an ending breach under its own terms, other law, or an agreement; or (B) keep its rights to the intellectual property — including enforcing any exclusivity, but not including the right to force the debtor to perform — exactly as those rights stood right before the case began, for as long as the contract runs plus any extension the licensee is entitled to as of right. If the licensee keeps its rights: (2)(A) the trustee must let the licensee use them; (B) the licensee must keep paying royalties for the full period it is using; and (C) the licensee gives up any right to offset amounts owed and any priority claim for helping perform the contract. (3) On the licensee's written request, the trustee must, as far as the contract requires, hand over any of the intellectual property it is holding and must not interfere with the licensee getting that property from another source. (4) Until the trustee actually rejects the contract, the trustee must, on written request and as the contract requires, either keep performing the contract or hand over the intellectual property, and must not interfere with the licensee getting it elsewhere.

(o) In a Chapter 11 case, the trustee is automatically treated as having assumed any promise the debtor made to a federal bank regulator to keep an insured bank properly capitalized, and must immediately fix any shortfall. A later claim for breaking that promise gets priority under section 507. This rule does not stretch out a commitment the regulator would otherwise be allowed to end on its own.

(p) Personal property leases: (1) If a lease of personal property is rejected, or not assumed in time under (d), the property stops being part of the bankruptcy estate and the automatic freeze on collection ("the stay") ends right away for it. (2) In a Chapter 7 case where the debtor is a person (not a company): (A) the debtor can tell the creditor^* in writing that they want to keep the lease; the creditor can then agree, on the condition that the debtor fixes any default under the lease's own terms; (B) if the debtor tells the landlord or lender in writing within 30 days that the lease is assumed, the debtor personally — not the bankruptcy estate — becomes responsible for it; (C) sending this notice and working out a fix does not break the automatic stay or the discharge order. (3) In a Chapter 11 case involving an individual, or in a Chapter 13 case, if the debtor leases personal property and the lease isn't kept in the confirmed plan, the lease is automatically rejected once the confirmation hearing ends — and the automatic stay (plus any Chapter 13 stay) on that property ends right away too.