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Simple English definitions for legal terms
debtor in possession
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A quick definition of debtor in possession:
A debtor in possession is a person or company that has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. They have assets that can be used to pay back the people they owe money to. The debtor in possession can keep using their assets to do business, but they have to do it for the benefit of their creditors. They have to follow rules set by the court and keep good records. They have a limited time to come up with a plan to pay back their debts. If the plan is approved by the court and they follow it, their debts will be forgiven.
A more thorough explanation:
A debtor in possession (DIP) is a person or company that has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. This person or company holds property or assets that can be used to pay off their debts to creditors. The debtor in possession can continue to operate their business using these assets, but they are doing so on behalf of their creditors. They essentially work as a trustee.
For example, if a company files for bankruptcy but still has inventory and equipment, they can continue to use those assets to keep their business running. However, they must keep detailed records and seek court approval for any actions that fall outside of regular business activities.
The debtor in possession has an exclusivity period of 120 days from the bankruptcy filing date to propose a reconstruction plan. During this time, they negotiate with their creditors and security holders for a plan to pay off their debts. If the plan is confirmed by the court and the debtor follows it for 3 to 5 years, their debts will be discharged.
It's important to note that the debtor in possession's activities are monitored by a committee of unsecured creditors. If the committee loses confidence in the debtor's asset management, they can ask the court to appoint a trustee.