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Understanding the DIP financing process

| Jun 29, 2022 | Chapter 11 Bankruptcy

Filing for bankruptcy in California can be a complex matter. This is all the more true if you are filing on behalf of your company. There are several forms of bankruptcy that are available. If you choose Chapter 11, you can have recourse to Debtor in Possession (DIP) financing. This can help you resolve your bankruptcy in a quick and cost-effective way.

How to qualify for DIP financing

Chapter 11 bankruptcy laws allow for the restructuring of your company. You can use DIP financing to gain access to capital funding while your bankruptcy proceeds. To qualify for this type of financing, you will first need to file for a Chapter 11 petition in a bankruptcy court.

The term “Debtor in Possession” will be given to the person who files for bankruptcy on behalf of the company. The point being made is that the actual debtor of the capital funding is still being given majority possession in all matters related to the company. After you file for Chapter 11, you have four months to propose a plan for reorganization.

How to get your reorganization plan confirmed

Chapter 11 is the best type or bankruptcy to choose if you have a valid plan of reorganization that you believe the court and your creditors will accept. Once you have submitted the plan, your creditors are allowed to vote on whether or not they will accept it. You have to prove that your company can raise enough money to cover your debts.

Once the plan is agreed upon, it will be up to you to repay them in a timely manner. This means giving them as much as they would gain if this plan was converted into a Chapter 7 liquidation. It must also follow state and federal bankruptcy laws.