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 New York, 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. This can be beneficial if the contract or lease is favorable to the debtor. Conversely, if the debtor or trustee rejects the contract or lease, they are indicating their choice not to perform their remaining obligations. Rejection is treated as a breach of contract, allowing the other party to file a claim for damages in the bankruptcy case. The decision to assume or reject a contract or lease must be approved by the bankruptcy court. The Bankruptcy Code, which is federal law, primarily governs these matters, but New York state law may also play a role in how certain aspects of the assumption or rejection are handled, particularly in relation to the treatment of specific types of contracts or leases.