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 Vermont, as in other states, when a debtor files for bankruptcy, they or the bankruptcy trustee 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 trustee assumes the contract or lease, they agree to continue performing the obligations under that agreement, which may include curing any defaults and providing adequate assurance of future performance. This decision must be made within a certain time frame and may be subject to court approval. On the other hand, if the debtor or trustee rejects the contract or lease, they are indicating their intention not to perform the remaining obligations, effectively breaching the contract. Rejection is treated as a pre-petition breach, and the non-debtor party to the contract may have a claim for damages as a result. The specifics of this process are governed by federal bankruptcy law, particularly under 11 U.S.C. § 365, and are not unique to Vermont. An attorney can provide guidance on the implications of assuming or rejecting a contract or lease in the context of a bankruptcy case.