What is debtor-in-possession (DIP) financing?

Debtor-in-Possession (DIP) financing is a type of financing specific to North Carolina Chapter 11 Bankruptcy Law. DIP financing is a loan provided to a debtor, usually by a lender or other third party, during the pendency of a Chapter 11 bankruptcy case. The debtor-in-possession has the ability to use the loan to pay for any creditors’ claims, employees’ wages, or operational costs of the business. DIP financing is important because it allows the business to continue operations during the bankruptcy process. Without DIP financing, the business would be unable to pay its creditors or keep employees on staff, making it difficult to remain afloat. The availability of DIP financing is also beneficial for lenders, who can protect their investment by ensuring that the business can keep up with payments and continue operations. In North Carolina, the Bankruptcy Court has the ultimate authority over DIP financing decisions. This means that the Court can approve or reject any DIP financing proposals, and can also impose conditions on DIP financing agreements. The Court will consider factors such as the debtor’s ability to make payments, the effect the financing will have on creditors, and the value of the business in making these decisions. Overall, DIP financing provides a way for businesses to stay afloat during the Chapter 11 bankruptcy process and for lenders to protect their investments. Its importance in the North Carolina bankruptcy process cannot be overstated.

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What is debtor-in-possession (DIP) financing?

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