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 Wisconsin, 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 under Section 365 of the Federal Bankruptcy Code. An executory contract is one in which both parties still have significant performance remaining. If the debtor or trustee assumes a contract or lease, they agree to continue performing their obligations under the agreement, which often 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 their remaining obligations, which is treated as a breach of contract as of the date immediately before the filing of the bankruptcy petition. Rejection allows the debtor to disentangle from burdensome contracts but may result in a claim for damages by the other party for breach of contract. The decision to assume or reject must be approved by the bankruptcy court, and the other party to the contract or lease has certain rights and remedies depending on the debtor's decision and the terms of the contract or lease.