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Chapter 11 bankruptcy with DIP financing

On Behalf of | Aug 23, 2022 | BANKRUPTCY LAW - Chapter 11

Chapter 11 bankruptcy is one of the most difficult processes that a company may face in Rupert, Idaho. It is only one small step away from total liquidation and failure as a business. Companies have to be careful and vigilant once they reach the Chapter 11 stage. They must gain control of their finances and take serious steps in order to reorient their business. Companies can often do this by finding a source of Debtor in Possession (DIP) funding. This funding is targeted toward helping companies with challenges put new plans into place that will rescue them from financial turmoil.

Chapter 11 bankruptcy

Chapter 11 bankruptcy is a form of bankruptcy that is most often used by businesses. It involves a business that is unable to pay its debts and must petition the court for relief. That company has to reorganize itself and set up a new structure with a new plan to pay off debts. The plan is a sort of compromise between the company and its creditors. Once the court approves the Chapter 11 bankruptcy plan, a company must continue under its new arrangement and start to make measurable progress in paying off its debts. If it does not, a court may force the company into Chapter 7 bankruptcy and liquidate its assets.

DIP financing

This form of financing is connected directly to the assets that are under consideration during bankruptcy. In many cases, DIP financing is more difficult to acquire than traditional forms of financing. There may be considerable fees and interest payments.

A company may have to place a large amount of collateral at risk before receiving its DIP financing. They may also have to acquire financing with unique terms. Despite these potential challenges, DIP financing can be the secret to allowing a company to build its way back from the depths of Chapter 11 bankruptcy.