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A Failure to Assume

By By Bruce Buechler

In most Chapter 11 cases, the debtor (or trustee if one is appointed), either prior to or in connection with plan confirmation, will move to assume or reject its executory contracts, unexpired leases, or both (collectively “executory contracts”) pursuant to ' 365 of the Bankruptcy Code. This article discusses the “ride-through” doctrine, which courts have developed to resolve the ambiguity resulting from a debtor's failure to assume or reject an executory contract under ' 365 prior to plan confirmation. Under this doctrine, “executory contracts that are neither affirmatively assumed or rejected by the debtor under ' 365, pass through bankruptcy unaffected.” In re Hernandez, 287 B.R. 795, 799 (Bankr. D. Ariz. 2002); see also In re Polysat, Inc., 152 B.R. 886, 890 (Bankr. E.D. Pa. 1993).

This article does not deal with leases of non-residential real property, because the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amended ' 365(d)(4) and imposed an outside limit of 210 days for a debtor-lessee to assume or reject a prepetition lease of non-residential real estate. Thus, under amended ' 365(d)(4), a non-residential real estate lease where the debtor is the lessee is deemed rejected if the debtor has neither assumed nor rejected it: 1) within 120 days of the bankruptcy filing, subject to one 90-day nonconsensual extension by court order (additional extensions require the lessor's consent); or 2) before plan confirmation, whichever is earlier. Accordingly, non-residential leases can no longer ride through a Chapter 11 bankruptcy case.

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