Your Responsibilities as a Debtor in Possession During Chapter 11
The role of the debtor in possession (DIP) is essential to the success of a Chapter 11 bankruptcy. In most cases, the debtor’s business continues to be operated by its owner, who acts as the proxy of the bankruptcy trustee. However, the DIP also takes on a fiduciary duty to act in the best interests of creditors.
There are responsibilities of a debtor in possession, including the following:
- Filing the reorganization plan and related documents
- Filing monthly operating reports
- Filing tax returns for the business
- Maintaining the business’s assets
- Objecting to questionable creditor claims
- Operating the business, which might include selling merchandise in the normal course
- Making payments required by the reorganization plan
- Taking any action required by the United States Trustee or the court
However, the DIP needs the trustee’s court approval to take certain major actions, such as:
- Obtaining additional financing to fund business operations during the Chapter 11
- Selling assets it normally wouldn’t sell in the normal course of its business
- Entering into, modifying or terminating leases, mortgages, financing agreements and other contracts
- Retaining and paying attorneys, accountants and other professionals
- Expanding or closing all or part of the business
The DIP’s fiduciary duties are to protect the legitimate interests of the creditors, to keep the trustee apprised of its actions and not to engage in fraudulent or bad faith conduct. A creditor who believes the DIP has breached its duty can ask the court to appoint a special trustee to investigate and / or run the business.
A bankruptcy attorney with experience representing debtors in possession can ease your burden by providing reliable advice on your rights and duties, seeking court approval when you need it and defending you against any charges of malfeasance.
The Law Offices of Michael Jay Berger in Beverly Hills is one of California’s most experienced bankruptcy law firms. If you need our assistance in a Chapter 11 or other bankruptcy matter, contact us online or call 310-271-6223 to schedule a consultation.
