Becoming a debtor in possession in a bankruptcy

| Jun 1, 2021 | Bankruptcy |

A Wisconsin company that is struggling financially might opt to file for a Chapter 11 bankruptcy. This allows for debt restructuring so that the business can potentially survive. The company continues to operate and is known as a “debtor in possession.”

Debtor in possession

The process of going through a Chapter 11 bankruptcy is a slow one, and the business has to seek permission from the court while it is a debtor in possession for certain actions. Among these are expanding business operations, ending business operations, selling any assets besides inventory and starting or ending a rental agreement. The court is also involved in contracts the business might make with vendors and unions and in its dealings with attorneys. However, the company is otherwise allowed to operate normally unless there has been fraud or similar issues. If this happens, the court appoints a trustee to run it.

Advantages of Chapter 11

A Chapter 11 bankruptcy is complex and expensive. Not every struggling business can afford to file for it, and some might have to opt for a liquidation bankruptcy instead. However, for businesses that can afford it, it can offer a survival plan. One advantage of Chapter 11 is that creditors are usually receptive to working with a company that files for it since they know they can usually get repaid, but they cannot take action against the company while it is going on. This allows the company to keep running and generating money that it can in turn use to repay its debts.

A business owner who is considering filing for Chapter 11 bankruptcy might want to consult an attorney to discuss the process and whether this would be the right option. The attorney may help in guiding the company through the restructure and to a fresh financial start.