Debtor in Possession refers to businesses in Chapter 11 bankruptcy in the US. The debtor holds assets and aims to restructure debt to become solvent. Creditors may repossess assets, but with court decisions, the debtor can argue to keep them. Chapter 11 filers are called possession debtors and remain in control of assets until a final bankruptcy judgment occurs. Personal bankruptcies also involve a debtor in possession, allowing the person to keep loans while other debts are forgiven.
Debtor in Possession refers to individuals or more specifically businesses that are in Chapter 11 bankruptcy in the United States. The term may be used slightly differently from state to state because states often determine specific bankruptcy laws. In more specific terms, the debtor in possession is a company that continues to hold assets on which it can be a debtor, especially in the period preceding the completion of the financial reorganization of the company. Subsequently, the retention of possession of certain things may rest with the courts or with individual agreements concluded with lenders.
Especially when Chapter 11 is filed, there is hope that a company will be able to restructure its debt so that it can become solvent again. Some things could make this very difficult such as losing the equipment the business needs to manufacture the products, losing transportation to deliver the products, or not owning other vital things that keep the business running. The obstacle here is that the creditors who have lent money to pay for these things want to be paid and if they insist on this, the debtor will not be in possession for long.
With the help of an attorney and with court decisions, the obligee in possession may be able to argue that certain things must be kept, and as long as the filing continues, creditors usually are unable to repossess. Nothing. Once a case has been finalized and restructured, there are a number of ways a holding debtor may be able to satisfy certain creditors. One of these would be to pay a small amount for the things you own. For example, the debtor could satisfy the creditor by paying the market value of any item. Another option may be to change the payments to a smaller amount and change the terms of this credit agreement.
Chapter 11 filers are also called possession debtors because this dictates how the courts handle the initial filing. Sometimes, when companies file for certain types of bankruptcy, all of the company’s assets are taken over and managed by a court-appointed trustee. With Chapter 11, this usually does not occur, and the possessing debtor remains in control of the assets until a final bankruptcy judgment occurs.
While the term isn’t technically used to refer to most Chapter 7 or 13 personal bankruptcies, many of these also involve a debtor in possession. A person who has a home or auto loan and files for bankruptcy is sometimes able to keep these loans while other debts are forgiven. The person then remains in possession of something technically owned by a creditor. Excusing or rescheduling debts can make it more possible for the debtor to pay the loan or car payments on time in the future.
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