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A landlord of residential property is not protected by § 365(d)(3) with respect to post-petition, prerejection rent and other obligations due under the lease. The courts look to § 503(d) and ordinarily find that a landlord is entitled to an expense of administration for post-petition rent to the extent that the landlord can prove a benefit to the estate.
Assumption of an executory contract under § 365(a)(1) binds the debtor to the contract. Further, the obligations under the assumed contract or lease become an expense of administration under § 503(b)(1)(A). Accordingly, in a chapter 13 case when the debtor assumed a vehicle lease and later defaulted, the lessor was entitled to an expense of administration for the unpaid sums due under the lease. The drastic consequences of erroneous assumption lead debtors to a number of creative theories. One debtor convinced the judge that although the court had authorized assumption of the worker compensation insurance policy as an executory contract, the policy was really not executory, and so the order need not be enforced as written.
In a more predictable result, the bankruptcy court denied the debtor's motion to amend the order authorizing assumption of a settlement agreement and supply contract. Merely because assumption of the contract was a mistake, even an expensive mistake for the estate, was not a basis for relief.
The debtor must cure defaults and assure future performance before assuming a contract.
