This is the first in a series of articles on the bankruptcy alphabet

We all make assumptions…about other people, about circumstances, events, expectations.   In bankruptcy and the financial world, “assumption” means something different.  It means essentially to “take over”.

In bankruptcy, a Trustee or debtor is able to assume certain obligations and reject others.   For example, if there is a executory contract¹ or an unexpired lease that a debtor (or the Trustee) wants to continue with, such as for a building or a vehicle, it can be assumed, or it can be rejected.   If it is assumed, then all of the obligations (such as making the monthly payments and other contractual requirements) remain in force and effect despite the bankruptcy.

Assumption usually takes place in Chapter 11 reorganization or Chapter 13 individual  cases where the debtor is operating a business and wants to continue operating out of a specific location that is being leased, or where certain contracts (such as exclusive listing agreements in real estate).   Section 365 of the bankruptcy code sets out requirements to assume (or reject) unexpired leases and executory (not fully performed) contracts.


¹ A contract is “executory” if the obligations of both parties are so far unperformed that the failure of either to complete performance would be a material breach of the contract.

A detailed list of other writing on the bankruptcy alphabet


Image courtesy of Brett Jordan