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 North Carolina, as in other states, when a debtor files for bankruptcy, they have the option to either assume or reject executory contracts and unexpired leases. An executory contract is one in which both parties still have significant performance remaining. If the debtor or the bankruptcy trustee decides to assume the contract or lease, they agree to continue performing their obligations under the agreement, which often involves curing any defaults and providing adequate assurance of future performance. Conversely, if they reject the contract or lease, they are indicating their refusal to perform their remaining obligations, and the contract or lease is considered breached as of the date of the filing of the bankruptcy petition. The decision to assume or reject an executory contract or unexpired lease is subject to the approval of the bankruptcy court. This process is governed by federal bankruptcy law, specifically under 11 U.S.C. § 365, and while state law can influence the interpretation of the contract terms, the bankruptcy process and the decision to assume or reject is a matter of federal law.