DIP or Debtor-in-Possession

Immediately upon a business entity’s filing of a petition under chapter 11 of the Bankruptcy Code, the business entity becomes a “debtor-in-possession” or “DIP” ( a type of “debtor” within the lingo of bankruptcy) and its property becomes a chapter 11 “estate” in the custody of the DIP.  No trustee is appointed unless a party successfully moves for the appointment of a chapter 11 trustee, based upon certain problems, bad acts, or misadventures involved in DIP functioning.  To confuse the nomenclature further, section 1107(a) of the Bankruptcy Code provides that a DIP has (most of) the rights, powers, and duties of a “trustee” – and so Bankruptcy Code sections that refer to what  a “trustee” can or must do often apply to DIPs as well.  In a chapter 11 reorganization case (where the DIP is not to be liquidated), counsel for the DIP (appointed with court approval) often assumes tactical command of the case, with varying levels of interaction with counsel for major secured creditors and of any unsecured creditors committee.

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