The primary rules governing the treatment of leases in bankruptcy are found in Title 11, Section 365 of the United States Code (the Bankruptcy Code). After filing a case under the Bankruptcy Code, tenant debtors can either “assume” or “reject” a lease, subject to court approval. See 11 U.S.C. § 365(a). The Bankruptcy Code gives the debtor significant control over this process. For example, the automatic stay prevents creditors (including landlords) from taking action against a bankrupt debtor without first obtaining relief through a bankruptcy court order. 11 U.S.C. § 362. And, in deciding whether to approve a debtor’s decision to assume or reject, courts apply the very lenient business judgment rule. See In re Penn Traffic Co., 524 F.3d 373, 383 (2d Cir. 2008).
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