How can a debtor reject burdensome leases and contracts in a chapter 11 bankruptcy?
One of the benefits of chapter 11 to a business debtor is that it has the choice to assume or reject its ongoing contracts and unexpired leases, and can reject financially burdensome ongoing contracts and unexpired leases. The claims of the other side to the contract or unexpired leases for rejection damages are treated as pre-petition unsecured claims in the bankruptcy. The Bankruptcy Code also caps a landlord’s lease rejection damages claim (to one year’s rent or 15%, not exceeding 3 years, of the remaining term of the lease).
