Overcoming Personal and Legal Challenges

Overcoming Personal and Legal Challenges

  1. Home
  2.  » 
  3. Bankruptcy
  4.  » What is debtor in possession in Chapter 11 bankruptcy?

What is debtor in possession in Chapter 11 bankruptcy?

A business owner in Wetumpka, Alabama, can choose several types of bankruptcy to relieve debt when they don’t see an out. If the debtor files Chapter 7, they will likely have to close their business. However, Chapter 11 has something unique called a debtor in possession to let the business remain open.

Chapter 11 bankruptcy

Chapter 11 is a special type of bankruptcy for corporations or sole proprietorships that have debts beyond Chapter 13 limits. Like Chapter 13, the process lets debtors reorganize their debts and stay open while they pay back the debt. To start the bankruptcy process, the debtor files documents detailing assets, contracts and liabilities as well as a financial affairs statement.

Individual debtors must commonly file extra documents and attend approved credit counseling. They may choose to devise their own payment plan subject to court approval. They commonly have three to five years to complete the plan, which discharges unsecured exempt debts.

Debtor in possession

Under Chapter 11 bankruptcy, the filer is the debtor in possession, meaning they keep control of assets with liens. While Chapter 7 and Chapter 13 require an assigned trustee, the owner may serve as the trustee. However, they still need permission to make some decisions outside of standard business activities. They also must not break the guidelines and must submit paperwork, such as taxes, to retain their status as debtor in possession.

Special financing is available for Chapter 11 filers to help them with the business. The loan may help the owner fund payroll, vendors and other operations until they pay debt or sell the business. The court must approve the financing, and interest depends on the risk level and assets offered as collateral.

All types of bankruptcy enable the automatic stay, which prevents creditors from seeking further collection. However, debtors should carefully consider bankruptcy, study their options and get advice before filing.