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What is a DIP Account and When is it Required in Ch 11 Subchapter V Bankruptcy Cases?

Serving Families Throughout Mobile

Chapter 11 is a bankruptcy debt relief option that allows individuals to avoid liquidation by drafting a repayment plan that will result in payment-in-full within a fixed three or five-year period. There are subchapters of this type of bankruptcy that may allow small businesses to qualify for Chapter 11 as well. While those who file Chapter 11 may be able to keep their property and accounts, a DIP account may not be available for regular purchases. Continue reading to learn more.

Chapter 11 Subchapter V

Chapter 11 Subchapter V bankruptcy is a type of reorganization that could be beneficial for struggling small businesses. This type of bankruptcy allows businesses to reorganize their assets and continue normal operations while paying off their debts according to a structured repayment plan.

To qualify, business owners must have less than $7.5 million in secured and unsecured debt with at least half of all debt being attributed to business activities. The only exception is single-asset real estate operators. Those who qualify must specifically state that they are filing under Subchapter V.

Those filing for Subchapter V must provide the following documents when filing their petition:

  • Cash flow statements
  • A recent balance sheet
  • A statement of operations
  • Federal income tax returns

While Subchapter V is a more streamlined version of Chapter 11, it is still important for those considering bankruptcy to speak with an attorney about their case.

Debtor in Possession Accounts

In a Chapter 11 Subchapter V bankruptcy reorganization case, a debtor may be able to keep their existing bank accounts, including a DIP (Debtor in Possession) account, as long as those accounts are not subject to any liens or security interests of the creditors. The purpose of a DIP account is to provide the debtor with a separate bank account to manage the funds they receive during the bankruptcy process.

This account is often used to make payments to creditors and to fund the debtor's ongoing operations. However, in a Subchapter V case, the debtor is typically a small business with debts below a certain threshold, and the bankruptcy process is designed to be more streamlined and cost-effective than a traditional Chapter 11 case. As a result, the court may not require the debtor to establish a DIP account, especially if they are able to manage their finances effectively without one.

Consulting an Attorney

That being said, the specific requirements for a DIP account in a Subchapter V case may vary depending on the jurisdiction and the facts of the case. It is always best to consult with a qualified bankruptcy attorney for guidance on the specific requirements and procedures involved in a Chapter 11 Subchapter V bankruptcy reorganization case.

If you are struggling under the weight of debt, Ryan Legal Services, Inc can help. Call our qualified bankruptcy attorney at (251) 241-5234 or schedule a consultation online. Our live representatives are available to answer your call 24/7.

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