§ 102.7 — Lessor Can Accelerate Assumption or Rejection
Revised: June 7, 2004
The nondebtor party to an executory contract or unexpired lease can move the court to require the Chapter 13 debtor to determine “within a specified period of time” whether the debtor will assume or reject.1 Especially in jurisdictions that delay confirmation until after the claims bar date,2 the nondebtor party has incentives to routinely file a motion to require the debtor to assume or reject in advance of confirmation.
Without an accelerated assumption or rejection, the nondebtor party is in Neverland for months pending confirmation of the plan. During the period of indecision, the nondebtor party probably is not being paid and is accumulating a claim of uncertain size and status under the plan. The lessor can hire counsel and demand adequate protection under § 363(e)—a procedure that is expensive, time consuming and not certain of outcome.3 If the debtor rejects the contract or lease through the plan, unpaid installments become prepetition unsecured claims paid whatever the plan provides for the general unsecured claim holders.4 The lessor can request an administrative expense if the debtor used the lessor’s property between the filing and rejection, but the lessor must then win the difficult argument that it provided an “actual, necessary” cost of “preserving the estate” for purposes of § 503(b)(1).5 The nondebtor party is almost always better off having the issue of assumption or rejection decided so that it is receiving regular payments or a surrender of the property. A motion to fix a deadline for assumption or rejection usually moves the process along to the advantage of the nondebtor party.6
1 11 U.S.C. § 365(d)(2); Fed. R. Bankr. P. 6006.
2 See § 216.1 [ Timing of Hearing on Confirmation ] § 115.1 Timing of Hearing on Confirmation before BAPCPA.
3 See § 174.3 [ Lessor Can Demand Adequate Protection ] § 102.6 Lessor Can Demand Adequate Protection.
4 See 11 U.S.C. § 365(g)(1), discussed in § 174.2 [ Rejection Generates Unsecured Claim ] § 102.5 Rejection Generates Unsecured Claim.
5 See §§ 296.1 [ Leases and Executory Contracts ] § 136.10 Leases and Executory Contracts before BAPCPA and 297.1 [ Failed Adequate Protection ] § 136.12 Failed Adequate Protection before BAPCPA.
6 See In re Wallace, 122 B.R. 222 (Bankr. D.N.J. 1990) (On lessor’s motion to compel debtors to assume or reject a lease, court granted debtors 15 days to file a motion to assume or reject the lease, including a plan provision for curing defaults and exercising the purchase option contained in the lease.).