What is “debtor in possession” financing?

In Washington, "debtor in possession" financing, also known as DIP financing, is a form of financing granted to the debtor under Chapter 11 Bankruptcy Law in order to allow the debtor to maintain control of the business until the debt has been resolved. It enables the debtor to pay back creditors and keep operations going. DIP financing is usually provided by the debtor’s existing creditor, a new lender, or a combination of both. DIP financing is secured by the debtor’s assets, which means that the lender has the legal right to take the assets if the debtor fails to pay back the loan. The debtor is granted “protection” in the form of a court order that prevents creditors from taking any action against the debtor until the debt has been paid off or restructured. This protection also prevents the lender from taking any action against the debtor until the debt has been paid off. In order to qualify for DIP financing, the debtor must provide evidence to the court that they will be able to pay back the loan in a reasonable time frame. This includes submitting a business plan that outlines their plan for restructuring their debt and making the payments. DIP financing can be an effective tool for debtors who are in the process of resolving their debts. It allows them to keep their business operations running, maintain control of the business, and work toward a resolution with their creditors.

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What is “debtor in possession” financing?

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