Debtor in Possession
Definition
A debtor in possession (DIP) is a Chapter 11 debtor whose existing management continues to operate the business during the bankruptcy, exercising most of the powers of a trustee without one being appointed. This is the default in Chapter 11 — unlike Chapter 7, where a trustee takes over to liquidate.
The DIP owes fiduciary duties to the bankruptcy estate (creditors as a whole, and equity if solvent), must seek court approval for actions outside the ordinary course of business (asset sales, financing, key contracts, executive retention plans), and files monthly operating reports. A trustee or examiner can be appointed for cause, such as fraud or gross mismanagement.
The DIP also wields the estate's special powers: the automatic stay, the ability to assume or reject executory contracts and leases, and avoidance actions (preferences, fraudulent transfers).
Why interviewers ask
Interviewers use this term to test whether you know Chapter 11 is a reorganization run by incumbent management under court oversight — not a seizure by a trustee. It also sets up follow-ups on contract rejection and why filing gives distressed companies real leverage.
Related terms
Interviews don't test definitions — they test recall under pressure.
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