Experienced NJ Bankruptcy Lawyer Advises Debtors in Possession
Know your rights and responsibilities when you file for Chapter 11 bankruptcy
A Chapter 11 bankruptcy tells your creditors that you are not able to fully repay what you owe. This puts you in a different relationship with them. As the “debtor in possession” of the business, you are no longer the outright owner. You are a fiduciary, with responsibilities for preserving the business and its assets for the creditors’ benefit. At the Law Offices of James C. Zimmermann in New Jersey, we provide the knowledgeable guidance you need to understand and fulfill these special duties while continuing to operate your enterprise and working to return it to solvency.
What is a debtor in possession?
Debtor in possession (DIP) is the term the U.S. Bankruptcy Code uses to describe an individual or corporation that has filed for Chapter 11 bankruptcy protection. As a DIP, you are no longer the owner of the business and assets but rather a trustee of the bankruptcy court. You have a fiduciary duty to preserve the value of the business and its assets, so that if they have to be sold to partially satisfy your creditors, there will be a fair return. You can continue to use your assets in the normal course of business. However, you need court permission to use the assets for extraneous purposes.
Advantages of being a debtor in possession
Your status as debtor in possession allows you to continue to operate your business with the goal of returning to solvency. Filing Chapter 11 bankruptcy provides an automatic stay, which prohibits your creditors from pursuing collection actions. DIP status enables you to seek financing to aid in your business recovery. The bankruptcy court must approve DIP financing, because that lender would get priority for repayment over your existing creditors.
Responsibilities of a debtor in possession
Once your business is in Chapter 11, you are running it in a different capacity, which means you must close your old business bank accounts and open new accounts naming you as debtor in possession. You must continue to pay employee wages, deduct the appropriate withholdings, place the withheld taxes on deposit and submit FICA payments on time. You must pay business taxes, maintain sufficient insurance on your business assets and periodically report to the bankruptcy trustee on the status of the businesses. But the bankruptcy court can restrict your other spending, because it might affect your creditors’ rights. For example, you can’t take out a loan using a business asset as collateral, since your creditors already have a lien on that property. You might also need court permission to hire additional staff or to contract professional services.
It can certainly seem as though you are not working for yourself anymore. You are working for your creditors under the watchful eye of the bankruptcy court and your trustee. The good news is that Chapter 11 allows you to stay in business, giving you the chance to return the company to profitability or to sell it for a satisfactory price.
Consult an experienced Chapter 11 bankruptcy lawyer in New Jersey
The Law Offices of James C. Zimmermann is a debt relief agency, helping individuals and businesses with Chapter 11 reorganizations. We have offices in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley. To schedule a free initial consultation, call 973-764-1633 or contact us online.