What is a “debtor-in-possession loan” in a Chapter 11 bankruptcy?

A debtor-in-possession loan (DIP loan) is a loan that allows a debtor in a Chapter 11 bankruptcy to use the loan funds to keep their business running while under bankruptcy protection. The loan provides the debtor with money to pay for operating expenses, such as payroll, rent, and utilities. The loan is secured by the debtor’s assets, such as accounts receivable, inventory, real estate, and machinery and equipment. This means that the lender has a right to the debtor’s assets if the debtor does not repay the loan. The loan is usually structured with more lenient terms than a traditional loan would be, such as reduced interest rates, more time to repay, no collateral, and no lender fees. In North Carolina, DIP loans are regulated by the Bankruptcy Code and the Bankruptcy Court. The court must approve the loan before it can be disbursed and must also approve the repayment plan. The court will also typically require that the debtor provide the lender with an operating budget and information on the value of assets that are pledged to secure the loan. DIP loans can help debtors to reorganize their businesses and maximize their ability to repay their creditors. However, the loan must be monitored closely to ensure that it does not exceed the value of the assets securing the loan. In addition, the court must approve all decisions regarding the loan.

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What is a “debtor-in-possession loan” in a Chapter 11 bankruptcy?

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