The Local Opt-Out Plan (“LOOP”) for the Eastern District of North Carolina required that executory contracts be assumed or rejected by motion pursuant to 11 U.S.C. § 365. The Debtor challenged this requirement through the inclusion in the nonstandard provision section of a rejection of executory contracts pursuant to 11 U.S.C. § 1322(b) (7), which specifically provides that a plan may “… provide for the assumption, rejection or assignment of any executory contract or unexpired lease of the debtor not previously rejected under section .”
Recognizing that the debtor’s “point is well taken” and following the holding in No v. Gorman, 891 F.3d 138 (4th Cir. 2018), that “a local rule of bankruptcy procedure cannot be inconsistent with the Bankruptcy Code”, the bankruptcy court allowed the nonstandard provision rejecting the executory contract.
This is a good example of where a discrete aspect of a LOOP was challenged through a nonstandard provision tailored for the actual case, rather than a “kitchen sink” approach of adding multiple NSPs for the first time all at once.
It should also be noted that the requirement for motions to assume or reject leases was originally included as that is the practice in Chapter 11 cases, with which many bankruptcy judges are more familiar in their previous practices.
Additionally, it appears that because BAPCPA requires the Administrative Office of the Courts to annually report on the numbers of rejections and assumptions of executory contracts, it tends to adjust budgets based on the number of such motions filed. Understanding the sub rosa motivations of other stakeholders in the bankruptcy system can help decipher the choices and requirements made.
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