is a good solution for people with financial problems and even saving some of their assets in some cases. One of the terms related to bankruptcy is assume. Many people ask what is assume and what it can do for them.
What is Assume?
Assume is an option for bankrupt trustee on a lease type after bankruptcy. An individual can assume a lease according to Chapter 7 bankruptcy. The type of contract to assume are executory contracts.
Aside from assuming a contract, an individual who announced bankruptcy can also terminate his contract if preferred.
Types of Contracts Eligible for Assume
Although assuming and terminating a contract is possible, a lot of people do not know which types of contracts are possible to assume after bankruptcy. There are two types of contracts that can be assumed: the executory and unexpired contracts.
The executory contracts are the contracts wherein both parties never carried out their obligations as stated in the contract. It means that the contract is still active due to both parties being unable to do their parts demanded in the contract. Since neither of the parties are able to do their obligations, the contract can be assumed to help both parties accomplish their obligations.
Unexpired contracts are like leases where the time period stated in the contract hasn’t run out yet. Therefore, the contract is still active and can still be completed by a trustee.
There are different types of leases and contracts that fall in these categories. Good examples are car leases, residential and commercial property leases, business contracts, patent licenses, and many more. For individuals who may be confused whether their contracts fall into these categories, they can ask financial experts to look into their leases and see whether they are assumable or not.
People who can Assume Contracts
There are two people who can assume the contract. One is the bankruptcy trustee. Another individual who can handle the decision is the debtor in possession or DIP.
Timeframe for Decision Making
A person assuming or terminating a contract needs to know the allowed timeframe before decision can be made. A trustee receives 60 days after filing for bankruptcy to decide whether leases described in the above category will be rejected or not. Leases that were not taken care of or didn’t receive any decision is deemed as a rejected or terminated contact.
Consequences of Contract Termination
Not assuming a contract has some effects. If the trustee decided to terminate the contract, it will become void and the balance owned with the creditor will be passed on to the bankruptcy file regardless of the post-filing amount. If the contract is still awaiting decision, the property indicated in the leased can’t be repossessed and can be used even without payment during the timeframe. However, this accumulating amount will be included in the bankruptcy file.
Overall, assuming a contract is a common practice. However, the technicalities behind this procedure may be confusing for many individuals new to financial laws and bankruptcy. A financial expert will be helpful in shedding light to assumable contracts and the processes surrounding it.