A debtor in possession or DIP in
United States bankruptcy law is a person or corporation who has filed a
bankruptcy petition, but remains in possession of property upon which a
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some propert ...
has a
lien
A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the pers ...
or similar
security interest
In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
. A debtor becomes the debtor in possession after filing the bankruptcy petition.
[Friedland & Cahill, Jonathan P. & Christopher M. (2021). Commercial Bankruptcy Litigation. Toronto, Ontario, Canada: Thomson Reuters. pp. ยง1:11. ] A corporation which continues to operate its business under
Chapter 11 bankruptcy proceedings is a debtor in possession.
Under certain circumstances, the debtor in possession may be able to keep the property by paying the creditor the fair market value, as opposed to the
contract
A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
price. For example, where the property is a personal vehicle which has depreciated since the time of the purchase, and which the debtor needs to find or continue employment to pay off his debts, the debtor may pay the creditor for the fair market value of the car to keep it.
See also
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Debtor-in-possession financing
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Seniority (financial)
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Bail out (finance)
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Default (finance)
In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A natio ...
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Distressed securities
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Insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
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Liquidation
Liquidation is the process in accounting by which a Company (law), company is brought to an end. The assets and property of the business are redistributed. When a firm has been liquidated, it is sometimes referred to as :wikt:wind up#Noun, w ...
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Bankruptcy alternatives
Notes
United States bankruptcy law
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