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 Washington state, as in all states, the treatment of executory contracts and unexpired leases in bankruptcy is governed by federal law under the U.S. Bankruptcy Code. When a debtor files for bankruptcy, they, or the appointed bankruptcy trustee, have the option to assume or reject executory contracts and unexpired leases. An assumption means that the debtor agrees to continue performing their obligations under the contract or lease, which effectively retains the contract or lease and requires the debtor to cure any defaults and provide adequate assurance of future performance. Rejection, on the other hand, is considered a breach of the contract or lease, and the debtor is released from their obligations, subject to certain rights of the other party to the contract or lease to file a claim for damages. The decision to assume or reject a contract or lease must be made by the deadline set by the bankruptcy court, and the court must approve the assumption. This process allows the debtor to reorganize their affairs by deciding which contracts and leases are beneficial to their restructured financial situation.