Recent 7th Circuit Decision Creates New Bankruptcy Risk

A recent 7th Circuit decision appears to create a serious new bankruptcy risk for landlords, vendors, suppliers, equipment lessors, and others. If the 7th Circuit is correct, a debtor-in-possession may now obtain judicial approval to assume its executory contracts and unexpired leases under Section 365 of the Bankruptcy Code, but not actually assume such contracts and leases until the debtor affirmatively acts to assume at some point in the future. This outcome appears to provide debtors-in-possession with an open-ended option to assume or reject their executory contracts and unexpired leases, notwithstanding the time limits for making that decision prescribed by Section 365 of the Bankruptcy Code.

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