A Borrower's Guide to Surviving Chapter 11
Debtor-in-Possession Financing — the capital that keeps a business alive.
Chapter 11 is not the end of your company. With the right financing in place, it can be the moment you stabilize cash flow, hold off creditors, and rebuild. This guide explains, step by step, how DIP financing works and how it can save a business worth saving.
The Short Version
What debtor-in-possession financing actually is
Debtor-in-possession (DIP) financing is new credit extended to a company after it files for Chapter 11 bankruptcy. The borrower stays in control of its own business — it becomes the "debtor in possession," running day-to-day operations under court supervision rather than handing the keys to a trustee.
Ordinary lenders avoid companies in bankruptcy. The Bankruptcy Code solves that problem by giving DIP lenders extraordinary protections that exist nowhere else in finance — chiefly "superpriority," meaning the DIP loan gets repaid ahead of almost every pre-bankruptcy debt. Those protections are what make it possible to lend fresh money into a distressed company, and what make DIP financing the lifeline at the center of most successful reorganizations.
A second chance, funded — reorganization instead of liquidation.
The money is used for exactly what a struggling business needs most: payroll, rent, inventory, vendors, utilities, professional fees, and the costs of getting through the case. Every dollar is spent against a court-approved budget, so creditors and the court can see precisely where the cash is going.
You keep control
As debtor in possession, you continue to operate the business and make ordinary-course decisions. Major moves require court approval, but no outside trustee takes over.
The clock stops
Filing triggers the automatic stay — an immediate, court-ordered freeze on collection efforts, foreclosures, lawsuits, and repossessions. It buys the breathing room to restructure.
New money comes first
Because DIP lenders are repaid ahead of existing creditors, fresh capital becomes available even when no ordinary lender would touch the company.
Reframing The Fear
Chapter 11 is a tool, not a tombstone
Two of the largest companies in American history — General Motors and Chrysler — used Chapter 11 and DIP financing to reorganize and survive. The same machinery is available to a regional contractor, a manufacturer, a developer, or a single-property real estate entity.
Chapter 11 exists to preserve a business as a "going concern" — worth more alive and operating than carved up and sold off. Chapter 7 liquidates. Chapter 11 reorganizes. The difference between the two, very often, is whether the company can get liquidity in the door fast enough to keep running while it fixes its balance sheet. That liquidity is DIP financing.
Chapter 7 — Liquidation
A trustee takes over, the business stops, assets are sold, and proceeds are distributed. The company ends.
Chapter 11 — Reorganization
You stay in control, operations continue, debts are restructured under a court-approved plan, and the business can emerge intact. DIP financing funds the bridge.
The Legal Engine
Section 364 — why anyone will lend to a bankrupt company
Everything about DIP financing flows from one statute: 11 U.S.C. § 364, titled "Obtaining Credit." It sets out a ladder of incentives a court can grant a new lender, escalating only as far as necessary to actually get the loan funded.
Ordinary unsecured credit — § 364(a)/(b)
New credit in the ordinary course, repaid as an administrative expense ahead of pre-bankruptcy unsecured claims. Rarely enough on its own for a distressed borrower.
Superpriority & new-collateral liens — § 364(c)
If the debtor can't get credit otherwise, the court can grant the DIP lender a “superpriority” administrative claim and liens on unencumbered assets or junior liens on encumbered ones. This is the workhorse of most DIP deals.
Priming liens — § 364(d)
The strongest tool: a lien senior to an existing secured lender's. A court will allow it only if (1) the debtor truly couldn't get financing any other way, and (2) the existing lender is “adequately protected” against loss in value. Powerful, and closely scrutinized.
Finality protection — § 364(e)
Once a court approves DIP financing in good faith, that approval generally can't be unwound on appeal unless an opponent obtained a stay. This legal certainty is exactly why lenders are willing to fund.
Superpriority, in plain terms
If the company is later liquidated, the DIP lender stands at the front of the line — typically ahead of pre-bankruptcy secured and unsecured creditors alike. That priority is the security blanket that makes a risky loan into a fundable one.
"Adequate protection," in plain terms
Before an existing lender can be primed, the court must protect it from losing value — often through replacement liens on new assets, periodic cash payments, or an equity cushion in the collateral. It's the counterweight that keeps the system fair.
Step By Step
How a borrower actually gets DIP financing
From the first phone call to repayment, the DIP lifecycle moves fast — sometimes within days of filing. Here is the path most cases follow.
Before filing
Build the budget & line up the lender
Working with restructuring counsel, the company prepares a detailed 13-week cash-flow forecast — the operational heart of any DIP — and negotiates loan terms with an existing lender or a third-party DIP lender. Lining up financing before filing is one of the strongest predictors of a smooth case.
Day 0 — The petition
File Chapter 11 & the first-day motions
The company files its petition along with a stack of “first-day motions” — including the DIP financing motion, cash-collateral motion, and motions to pay employees and critical vendors — plus a “first-day declaration” explaining how the company got here and why it needs relief.
Days 1–3 — First-day hearing
Get the interim order
On an emergency basis, the court issues an interim order authorizing a limited initial draw — enough to keep operating and avoid irreparable harm for the next few weeks — while giving creditors time to review the full terms.
~Day 14–30 — Notice & objections
Creditors weigh in
A creditors' committee may form and the U.S. Trustee gets involved. They scrutinize the terms — roll-ups, priming, fees, milestones, the professional-fee carve-out — and negotiate revisions before final approval.
~Day 30–45 — Final hearing
Get the final order
After proper notice, the court enters a final order approving the full facility, the permanent liens, and the superpriority claim. The complete DIP commitment becomes available against the approved budget.
Throughout the case
Operate, report, hit milestones
The company draws against the budget under strict variance testing and must meet milestones baked into the loan — e.g., file a plan of reorganization or launch a § 363 asset sale by set deadlines. Missing them can trigger default.
Exit
Repay, refinance, or convert
The DIP loan is repaid from exit financing on emergence, from the proceeds of a § 363 sale, or it converts to equity or exit debt under a confirmed plan of reorganization. The business emerges; the lender is made whole.
The Vocabulary
The terms you'll hear — translated
- Cash collateral§ 363
- Cash (and proceeds of inventory/receivables) that an existing lender has a lien on. You can't spend it without the lender's consent or a court order — which is why the cash-collateral motion is filed alongside the DIP motion.
- Roll-upRestructure
- When a pre-bankruptcy lender's existing debt is “rolled” into the new DIP facility, converting old, riskier debt into protected superpriority debt. Common, but watched closely because it advantages one creditor. A “creeping roll-up” achieves it gradually as the borrower draws new money.
- Priming lien§ 364(d)
- A new lien that jumps ahead of an existing secured lender. Allowed only when the debtor has no other option and the primed lender is adequately protected.
- Carve-outProtection
- Money set aside from the lender's collateral to guarantee the debtor's lawyers and advisors (and sometimes the U.S. Trustee) get paid. Without it, professionals won't take the case — so it's fiercely negotiated.
- 13-week budgetThe TWCF
- A weekly forecast of every dollar in and out for the next quarter. The DIP runs on it, and lenders enforce it through “variance” limits on how far actuals can stray.
- MilestonesDeadlines
- Hard dates in the loan agreement — file a plan, run a sale, confirm by a certain day. Blowing a milestone is an event of default.
- Adequate protection§ 361
- The safeguards (replacement liens, cash payments, equity cushion) that shield an existing secured creditor from losing value when its collateral is used or its lien is primed.
- Credit bid§ 363(k)
- A secured or DIP lender's right to bid its own debt — rather than cash — to buy the collateral in a court-supervised sale.
- Defensive DIPStrategy
- A DIP funded by an existing lender largely to protect its prior position and steer the case, rather than to inject substantial new money.
Is This You?
Who DIP financing is built for
DIP financing isn't only for billion-dollar corporations. It is used across the size spectrum — and is especially powerful where there's real underlying value to protect.
- Operating businesses with a viable core. Manufacturers, distributors, contractors, and service firms that are fundamentally sound but choking on debt or a liquidity crunch.
- Real estate & development entities. Projects needing capital to complete entitlements, fund construction, address emergency conditions, or stabilize an asset through a sale or refinancing — a particular focus of 364 Capital.
- Single-asset real estate (SARE) debtors. Entities whose income comes from one property, which have their own dedicated Bankruptcy Code provisions and financing dynamics.
- Companies pursuing a § 363 sale. Where the goal is a clean, court-supervised sale of the business or its assets, DIP financing funds operations through closing.
- Small businesses under Subchapter V. A streamlined, faster, cheaper Chapter 11 track created in 2019 for qualifying smaller debtors (below a periodically-adjusted debt ceiling; the temporary $7.5M cap has reverted — confirm the current limit with counsel). DIP financing and cash-collateral tools work here too.
If the business is worth more running than dead, there is usually a financing path to keep it running.
The Economics
What DIP financing costs — honestly
DIP capital is more expensive than ordinary lending, because the lender is funding a company in bankruptcy. But the protections of § 364 make these loans relatively safe to extend, which keeps pricing rational rather than punitive. The figures below reflect terms seen across recent (2025–2026) facilities; your case will price to its own risk, collateral, and size.
| Component | What it is | Typical range |
|---|---|---|
| Interest rate | Charged on drawn amounts; often cash-pay, sometimes “PIK” (added to the balance) | ~5% – 13%+ |
| Default rate | The bumped rate if the borrower defaults | +2% – 9% over base |
| Upfront / commitment fee | Paid to put the facility in place | ~1% – 3% |
| Exit fee | Paid when the loan is repaid | ~0.5% – 6% |
| Maturity | Short by design — tied to case milestones | ~3 – 12 months |
Larger, multi-tranche deals can layer PIK interest and stacked fees that push the effective cost higher; smaller "new-money-only" facilities are typically simpler. The headline rate is rarely the whole story — fee structure, milestones, roll-up terms, and the carve-out matter just as much. A good DIP lender prices fairly and structures the facility so the company can actually succeed.
Eyes Open
What to watch before you sign
Control vs. cash
Aggressive DIP terms — tight milestones, short maturities, broad defaults — can hand the lender significant control over your case. Negotiate the operating runway you actually need.
The budget is binding
A 13-week budget that's too optimistic becomes a trap. Variance covenants are enforced strictly; build realistic numbers with margin for the unexpected.
Roll-ups & priming draw scrutiny
These features can be approved, but they invite objections from other creditors and the U.S. Trustee. Expect negotiation, and understand who benefits.
Protect the professionals
An adequate carve-out keeps your counsel and advisors paid and the case moving. Too thin a carve-out risks “administrative insolvency.”
None of this is a reason to avoid DIP financing — it's a reason to structure it well, with experienced counsel and a lender who wants the reorganization to succeed.
The Lender
Why borrowers and counsel come to 364 Capital
364 Capital is a direct, principal source of capital for special situations — including debtor-in-possession financing for companies and real estate entities in Chapter 11. We are not a broker shopping your file. We lend our own capital, which means speed, certainty, and a counterparty who is accountable from the first call to the final order.
We continuously monitor the national DIP market — the rates, fees, and terms courts are actually approving — so the financing we offer is competitive and built to be approved. We've provided court-approved DIP facilities in active Chapter 11 cases, including in real estate and development matters where timing and execution are everything.
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Leadership
Renzo Renzi
Leads 364 Capital's special-situations and DIP lending platform, with a focus on real estate and development bankruptcies. Renzo and the firm actively track the national DIP market and have testified to and obtained court approval of DIP facilities in active Chapter 11 proceedings. [[Add documented bio — background, years in distressed credit, notable verifiable matters]]
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Representative approach
- We move at filing speed. Emergency situations get emergency attention — we can engage on interim financing on the timeline a first-day hearing demands.
- We structure to be approved. Terms benchmarked to what courts are confirming, with the carve-outs and adequate-protection mechanics that get final orders signed.
- We want the reorganization to work. A facility the borrower can actually perform under is a facility that gets repaid. Our interests are aligned.
- Real estate & development depth. [[Optionally summarize publicly documented matters — case names/courts only if part of the public record and cleared by counsel.]]
Straight Answers
Frequently asked questions
Do I lose control of my company in Chapter 11?+
No — that's the point of being a “debtor in possession.” In most Chapter 11 cases you keep running the business and making ordinary-course decisions. Significant actions need court approval, and you operate transparently against a budget, but no trustee takes over your operations.
Can I get DIP financing if I already have a senior lender?+
Often, yes. The DIP can be junior to existing liens, secured by unencumbered assets, or — where you genuinely can't finance any other way and the existing lender is adequately protected — secured by a “priming” lien that sits ahead of them under § 364(d). Sometimes the existing lender provides the DIP itself.
How fast can financing be in place?+
Interim financing can be authorized within days of filing at the first-day hearing — sometimes within 24–72 hours in a true emergency. That's why lining up a committed lender and a clean budget before you file matters so much. Final approval of the full facility usually follows roughly a month later.
What can the money be used for?+
Operating needs under a court-approved budget: payroll, rent, utilities, inventory, critical vendors, insurance, and the professional fees of running the case. Some facilities also refinance or “roll up” certain pre-bankruptcy debt. It cannot be spent outside the approved budget without further authority.
Is DIP financing only for huge companies?+
No. While the famous examples are large, DIP financing is used across the size spectrum, including smaller businesses (often via the streamlined Subchapter V track) and single-property real estate entities. What matters most is that there's value worth preserving and a credible path to repayment.
How is the loan repaid?+
Three common exits: refinanced by “exit financing” when the company emerges from bankruptcy; repaid from the proceeds of a court-supervised § 363 asset sale; or converted into exit debt or equity under a confirmed plan of reorganization.
Should I talk to a lender before I file?+
Ideally, yes — alongside your restructuring counsel. Pre-arranged financing and a tested 13-week budget are among the strongest indicators of a case that runs smoothly. 364 Capital regularly engages with borrowers and their counsel before the petition is filed.
Speak With 364 Capital
If the business is worth saving, let's talk about funding it.
Whether you're a business owner weighing Chapter 11 or counsel preparing a filing, we'll give you a direct, honest read on whether DIP financing fits — and what it would take.
Important — please read. This page is provided by 364 Capital for general educational purposes only. It is not legal, financial, tax, or investment advice, and it does not create an attorney–client, fiduciary, or advisory relationship. Debtor-in-possession financing and Chapter 11 are governed by the U.S. Bankruptcy Code and are subject to court approval; outcomes depend on the specific facts of each case, applicable law, and the discretion of the bankruptcy court. Statutory thresholds, market terms, interest rates, and fees referenced here change over time and are illustrative, not a quote or commitment to lend. Nothing here is an offer, solicitation, or commitment to provide financing on any terms. Always consult qualified bankruptcy counsel and your own financial advisors before making decisions about bankruptcy or financing. If you are considering Chapter 11, speak with a licensed attorney about your particular situation.