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 Rhode Island, 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 typically requires 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 the remaining obligations, which is treated as a breach of contract as of the date immediately before the filing of the bankruptcy petition. This decision to assume or reject is subject to the approval of the bankruptcy court. The Bankruptcy Code, which is federal law, primarily governs these proceedings, and the specific procedures and deadlines for assumption or rejection are outlined in 11 U.S.C. §§ 365 and 1123. It's important for debtors and creditors to consult with an attorney to understand the implications of assumption or rejection in a bankruptcy case.