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 Oregon, 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. 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 the 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's estate. Conversely, rejection of the contract or lease is essentially a breach of the agreement, allowing the other party to file a claim for damages, but it also relieves the debtor of any further obligations under that agreement. The decision to assume or reject must typically be made by the time the bankruptcy plan is confirmed. The Bankruptcy Code, which is federal law, primarily governs these matters, but state law may also play a role in how certain aspects of the contracts or leases are interpreted and enforced.