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 Maryland, as in all states, the treatment of executory contracts and unexpired leases in bankruptcy is governed by federal law under the Bankruptcy Code. When a debtor files for bankruptcy, they or the appointed bankruptcy trustee have the option to assume or reject executory contracts and unexpired leases. Assumption means that the debtor agrees to continue performing under the contract or lease, which includes curing any defaults and providing adequate assurance of future performance. Rejection, on the other hand, is treated as a breach of the contract or lease as of the date immediately before the filing of the bankruptcy petition. This allows the debtor to discontinue performance and can result in the other party to the contract having a claim for damages due to the breach. The decision to assume or reject must be made by the deadline set by the Bankruptcy Code or by the bankruptcy court. If the debtor fails to timely assume or reject an executory contract or unexpired lease, it is generally deemed rejected. The specific procedures and implications of assumption or rejection can be complex and are often subject to negotiation and litigation within the bankruptcy process.