Debtor in Possession
What does Debtor in Possession mean?
A debtor in possession is a Chapter 11 debtor who remains in control of the financial activities of a business bankruptcy filing. During the reorganization period, creditors can request that the bankruptcy court appoint either a management committee of creditors to run the daily operations of the business, or they can request the court appoint a special trustee to manage the daily operations of the business. Without a formal request and hearing, the owner or owners of the business normally act as a debtor or debtors in possession.
If the creditors are not successful in a court hearing to take over the daily operations of the business or to have business operations managed by a trustee, the debtor in possession has the authority to make unsecured and secured loans, buy and sell assets, or obtain some type of priority lien to pay the current debts and end the bankruptcy.
Debtors in possession may also be able to use Chapter 11 bankruptcy to delay making payments to certain creditors, avoid payment of certain interest, penalties, and fees on debts and have more input in creating their reorganization plan.