California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - JULY 1999
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MCLE SELF-STUDY

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Self-Assessment Test
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Answer the following questions after reading the MCLE article on executory contracts in bankruptcy cases. Use the answer form provided to send the test, along with a $20 processing fee, to the State Bar. Please allow at least eight weeks for MCLE certificates to reach you in the mail.

1. All property rights in bankruptcy are defined in the United States Bankruptcy Code which pre-empts all applicable state law.

2. Executory contracts are contracts that the debtor has not fully performed at the time of the bankruptcy filing.

3. The debtor's rights under an executory contract become property of the bankruptcy estate:

A. as soon as the contract is assumed by the trustee;

B. only if the trustee does not reject the contract;

C. immediately upon commencement of the case;

D. automatically 60 days after commencement of the case.

4. A provision in an equipment lease which automatically terminates the lease in the event of the lessee's bankruptcy is:

A. enforceable if the bankruptcy court finds that the clause is fair and equitable;

B. invalid under the Bankruptcy Code;

C. enforceable in bankruptcy if the court finds that termination of the lease is in the best interest of the estate;

D. enforceable only if it is supported by applicable state law.

5. If the debtor is leasing a parcel of farm land when it files Chapter 11:

A. the lease is automatically rejected if the debtor does not assume it or apply for an extension of time within 60 days;

B. the debtor must pay the pre-petition rent before it can assume the lease;

C. the debtor may assume the lease any time before the plan is confirmed;

D. none of the above.

6. A land sale contract for real property is an executory contract if the debtor already has possession of the property and the seller holds possession of the deed as security for the payment.

7. The debtor has been evicted from real property pursuant to a final unlawful detainer judgment in the state court. The debtor may file bankruptcy within 60 days and demand that the landlord surrender the property if the property is necessary to the debtor's reorganization.

8. The automatic stay protects both the debtor and property of the bankruptcy estate which includes the debtor's rights under an executory contract.

9. The non-debtor party to an executory contract in bankruptcy may:

A. remain obligated to perform under the contract until the contract is rejected or terminated;

B. move the bankruptcy court for an order compelling the debtor to assume or reject the contract and to provide adequate assurance of its future performance;

C. move for relief from the automatic stay to terminate the contract and request adequate protection for its interest under the contract;

D. all of the above.

10. The non-debtor client may perform its contract during the bankruptcy and be entitled to an administrative claim which:

A. assures that the client will be paid in full before all other creditors or claimants;

B. assures the client will be paid in full before the case is dismissed, converted to Chapter 7 or closed;

C. must be paid by the debtor within 60 days or the contract will automatically terminate;

D. entitles the client to payment from available funds along with the other administrative claims of the estate.

11. The debtor in Chapter 11 may cure the defaults and assume or reject an equipment lease at any time:

A. prior to conversion of the case to Chapter 7;

B. prior to confirmation of the Chapter 11 plan;

C. prior to closure of the case;

D. after commencement of the case.

12. A real estate developer files for bankruptcy protection in the middle of a construction project. The construction lender must continue advancing funds for the project if the trustee assumes the loan agreement.

13. A Chapter 7 trustee must assume or reject a favorable residential property lease within 60 days after the case is filed or apply for an extension of time. Otherwise the lease is automatically terminated.

14. A Chapter 11 debtor leases an airplane for a hobby. Until the lessor gets relief from stay and repossesses the airplane, the accrued lease payments will be an administrative expense of the estate.

15. The automatic stay allows the trustee to use nonresidential real property for 60 days after the case is filed without paying the rent due under the lease.

16. The debtor in Chapter 11 rejects its office lease with five years left on the lease and surrenders the property back to the lessor. What claim is the lessor entitled to assert in the bankruptcy?

A. An unsecured claim for any pre-petition default plus one year of rent;

B. an administrative claim for the unexpired term of the lease;

C. an unsecured claim for the unexpired term of the lease;

D. an unsecured claim for all damages allowed under applicable state law.

17. The debtor in Chapter 11 may elect to assume a favorable executory contract and

A. reject or modify the unfavorable terms;

B. the entire contract becomes an administrative liability of the estate;

C. subsequently elect to reject the contract within 60 days;

D. modify the contract through a Chapter 11 plan.

18. The nondebtor client must get an order for relief from the automatic stay to examine the debtor and compel production of documents relevant to the debtor's ability to perform an executory contract.

19. The trustee in bankruptcy cannot assume or assign a personal service contract if state law protects the nondebtor party from accepting or giving performance to a third party.

20. Sometimes the trustee cannot determine within 60 days whether it is prudent to assume or reject an unexpired lease. The trustee may apply for an extension of time within 60 days after the lease terminates.

CERTIFICATION

This activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of 1 hour.

The State Bar of California certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.