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 South Carolina, 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. Conversely, if they reject the contract or lease, they are essentially indicating that they will not perform the remaining obligations, and the rejection is treated as a breach of contract as of the date immediately before the date of the filing of the bankruptcy petition. The non-debtor party to the contract or lease then typically has a claim for damages resulting from the breach, which they can assert in the bankruptcy case. The decision to assume or reject a contract or lease must be approved by the bankruptcy court, and the process is governed by federal bankruptcy law, specifically 11 U.S.C. § 365.