A debtor in possession (DIP) is a person or corporation that has filed for Chapter 11 bankruptcy protection but still holds property to which creditors have a legal claim—based on a lien or other security interest. A DIP may continue to do business using those assets but is required to seek court approval for any use outside of regular business activities. The DIP must also maintain financial records, insure the property, and file appropriate tax returns.
One advantage to DIP status is for the debtor to be able to continue to run the business (reorganizing it) rather than liquidating it or selling it for less than its true value—which benefits both the debtor and the creditors. A DIP may also be able to secure DIP financing to remain solvent until the business can be sold.
But after filing for Chapter 11 bankruptcy, the debtor must close its bank accounts and open new accounts that indicate its status as a debtor in possession on the account. And significant decisions regarding the operation of the business must be approved by the bankruptcy court. A DIP must act in the best interests of its creditors and employees. And A DIP’s spending and financing practices are carefully regulated by the bankruptcy court.
In Texas, a Debtor in Possession (DIP) refers to a person or corporation that has filed for Chapter 11 bankruptcy but retains control of their property, which is subject to creditors' claims. The DIP is allowed to operate its business with the goal of reorganization rather than liquidation, which can be more beneficial for both the debtor and creditors. The DIP must seek court approval for transactions outside of normal business operations, maintain accurate financial records, insure assets, and file tax returns. Additionally, the DIP can obtain financing under court supervision to keep the business afloat during the reorganization process. Upon filing for Chapter 11, the debtor is required to open new bank accounts reflecting their DIP status. All significant business decisions must be approved by the bankruptcy court, and the DIP is expected to act in the best interest of creditors and employees. The court closely monitors the DIP's financial activities to ensure compliance with bankruptcy regulations.
