Businesses have their ups and downs, but they usually pull off stronger than ever after facing a monumental obstacle. However, some business owners had to make the difficult decision of filing for a Chapter 11 bankruptcy. This allows a business to withhold payment for most of its creditors as long as it undergoes a reorganization plan that includes project repayment initiatives.

Unlike a Chapter 7 bankruptcy, a business entity under a Chapter 11 bankruptcy must pay off withheld dues from creditors as the debtor. This means a business owner can’t just wave their outstanding debt. Since it’s an agreement that still maintains ties with creditors, it’s important to have an effective financial plan to pay off these dues. Thankfully, there are financial strategies you can use to streamline your repayment efforts.

What Happens After Filing a Chapter 11 Bankruptcy?

Businesses in financial distress will benefit more from filing for bankruptcy instead of utilizing loans upon loans to temporarily pay off debt. Although out-of-court workouts can be effective strategies, they’re not always reliable and consistent with the outcome. For this reason, the best course of action for a business owner is to restructure with a Chapter 11 bankruptcy.

A Chapter 11 bankruptcy gives you a wide range of options for facilitating your financial strategies. Since recovering a business positive revenue stream will also require capital, it’s necessary for the debtor to find financial supporters. Unfortunately, lenders may be reluctant to take on borrowers trying to recover from their financial dilemma. Thankfully, the Bankruptcy Code can ease the risks a lender could take through Debtor-in-Possession Financing.

How Can Debtor-in-Possession (DIP) Financing Help with a Bankruptcy?

Debtor-in-Possession is a funding option provided for businesses that file for Chapter 11 bankruptcy. This gives borrowers the credibility to take out loans from lenders since they have a viable reorganization plan in place approved by the court. It’s a special type of loan that’s only available for firms facing bankruptcy.

Lenders see DIP financing as a valuable incentive to accept lenders, especially since the US bankruptcy law has certain provisions to mitigate potential risks. For instance, DIPO creditors need to receive their payment before the borrower’s dues for other creditors are resolved. This is an assurance that lenders will come first in terms of a bankrupt borrower’s repayment priorities.

How Does Debtor-in-Possession (DIP) Financing Work?

DIP financing is typically approved by the Bankruptcy Court to ensure the protection of creditors and observe the debtor’s reorganization plan. Besides this ruling, several rulings need to be observed.

DIP financing will require a priority security interest, which the Bankruptcy Court will then approve. Additionally, a lender currently under the debtor’s list of creditors may be willing to provide a DIP business bankruptcy loan to the debtor. This can be approved even if the said lender has already declined to make further advances before the bankruptcy hearing.

Once the Bankruptcy Court approves a DIP loan and confirms that its funding is in good faith, there will be no need to question the credit to legal challenge. This allows the borrower to avoid defending legal challenges to loans outside of their bankruptcy.


If your company is going through a financial crisis, you must have a full scope of options to make the right business decisions. Otherwise, you could risk losing your company even when you still have a fighting chance to recover your losses. The best way to push through your financial dilemma is to work with the right business partners. Through this, you’ll have reliable partners to overcome your current challenge.

If you think DIP financing is the right option for you, we’re the right company to call. At Portal Capital, we can offer your business the best capital solutions for your financial concerns. Get a free quote and experience the best loan rates today!