When some or all of a debtor’s obligations under an existing contract or lease have yet to be performed, the debtor (or the bankruptcy trustee) can decide whether to agree to perform or refuse to perform its obligations under the contract or lease. If the debtor agrees to perform its remaining obligations it has assumed responsibility for the contract or lease. This is called an assumption of the contract or lease. And if the debtor or bankruptcy trustee refuses to perform the remaining obligations under the contract or lease it is a rejection of the contract or lease.

In Delaware, as in other states, when a debtor files for bankruptcy, they or the bankruptcy trustee have the option to assume or reject executory contracts and unexpired leases under Section 365 of the Federal Bankruptcy Code. An executory contract is one in which both parties still have significant performance remaining. If the debtor or trustee assumes the contract or lease, they agree to continue performing their obligations, which may include curing any defaults and providing adequate assurance of future performance. Conversely, if they reject the contract or lease, they are indicating their intention not to perform the remaining obligations, effectively breaching the contract. Rejection is treated as a pre-petition breach, allowing the other party to the contract to file a claim for damages as a result of the breach. The decision to assume or reject a contract or lease must be made by the deadline set by the bankruptcy court, which is typically within 120 days after the bankruptcy filing for non-residential real property leases, extendable for another 90 days with the court's permission. For other types of contracts, the deadline may vary. The bankruptcy court must approve the assumption or rejection of the contract or lease.