What is “debtor in possession” financing?

In Alaska, debtor in possession (DIP) financing is used in Chapter 11 Bankruptcy law. It is a special type of financing that allows the borrower, or the “debtor in possession,” to use their own assets as collateral for a loan while their bankruptcy case is still active. The court must approve DIP financing before it can be used. The purpose of DIP financing is to allow the debtor to keep their business going during the bankruptcy process, or to carry out a reorganization plan. The debtor is not allowed to use cash or other assets to pay for their debts, or to use them to purchase new assets, so the DIP financing is necessary. DIP financing is typically expensive because the lender takes on a higher degree of risk. Normally, the lender is not paid until the bankruptcy case is resolved and the assets of the debtor have been liquidated. In addition, there may be additional costs associated with the loan, such as filing fees and other administrative expenses. Because of the risks involved in DIP financing, judges in Alaska are very selective in approving these loans. The court will typically consider factors such as the debtor’s ability to repay the loan and the benefits that the loan will provide to creditors. Judges may also consider whether the debtor has a viable business plan that will ensure the repayment of the loan.

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What is “debtor in possession” financing?

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