Debtor in possession
Encyclopedia
A debtor in possession in United States bankruptcy law
is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor
has a lien
or similar security interest
. A corporation which continues to operate its business under Chapter 11 bankruptcy proceedings
is a debtor in possession.
Under certain circumstances, the debtor in possession may be able to keep the property by paying the creditor the fair market value, as opposed to the contract
price. For example, where the property is a personal vehicle which has depreciated in value since the time of the purchase, and which the debtor needs to find or continue employment to pay off his debts, the debtor may pay the creditor for the fair market value of the car to keep it.
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
has a lien
Lien
In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation...
or similar security interest
Security interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
. A corporation which continues to operate its business under Chapter 11 bankruptcy proceedings
Chapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
is a debtor in possession.
Under certain circumstances, the debtor in possession may be able to keep the property by paying the creditor the fair market value, as opposed to the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
price. For example, where the property is a personal vehicle which has depreciated in value since the time of the purchase, and which the debtor needs to find or continue employment to pay off his debts, the debtor may pay the creditor for the fair market value of the car to keep it.
See also
- Debtor-in-possession financingDebtor-in-possession financingDebtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more senior than debt, equity, and any other securities issued by a company...
- Seniority (financial)Seniority (financial)In finance, seniority refers to the order of repayment in the event of bankruptcy.Senior debt must be repaid before subordinated debt is repaid...
- Bail out (finance)Bail out (finance)In economics, a bailout is an act of loaning or giving capital to an entity that is in danger of failing, in an attempt to save it from bankruptcy, insolvency, or total liquidation and ruin; or to allow a failing entity to fail gracefully without spreading contagion.-Overview:A bailout could be...
- Default (finance)Default (finance)In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
- Distressed securitiesDistressed securitiesDistressed securities are securities of companies or government entities that are either already in default, under bankruptcy protection, or in distress and heading toward such a condition. The most common distressed securities are bonds and bank debt...
- InsolvencyInsolvencyInsolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
- LiquidationLiquidationIn law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
- Bankruptcy alternativesBankruptcy alternativesBankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges most debts, but has the disadvantage of making it...