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  1. Bankruptcy Glossary
  2. Debtor in Possession

What is Debtor in Possession?

If a company has filed Chapter 11 Bankruptcy the goal is to reorganize the financial obligations of the company so they can continue business operations. Debtors in Chapter 11 Bankruptcy cases are known as the "Debtor in Possession" after the Chapter 11 Bankruptcy case begins and will allow the debtor in possession to 1) retain their property 2) develop a bankruptcy repayment schedule 3) continue to make money to pay their debts.

The debtor may remain in possession, but if the creditors believe they are mismanaging the business or committing fraud they can request that a Trustee be appointed to manage the bankruptcy process. The debtor in possession duties are outlined in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. 11 U.S.C. 1106, 1107; Fed. R. Bankr. P. 2015(a) and include the duties that are generally performed by the trustee such as:

  • Examining and objecting to claims.
  • Accounting for property.
  • Filing reports required by the Bankruptcy Court and the United States trustee including monthly operating reports.
  • Hiring necessary professionals including accountants, appraisers and attorneys to help with the reorganization process.

The debtor in possession is also authorized to borrow unsecured credit without court approval, get secured credit, or obtain a super priority lien. One of the benefits of securing financing is the extra capital may provide the liquidity the business needs to pay all the necessary business expenses and complete the bankruptcy process sooner.