A bankrupt firm while being in the process of developing a reorganization plan is allowed to buy goods on credit and borrow money to finance needed working capital. Such an arrangement is called:
A) Debtor-in-possession debt
B) Junior creditors
C) Workout
D) Receiver

Question

Quizplus · Accepted Answer

Debtor-in-possession (DIP) financing allows a bankrupt firm to borrow money or buy goods on credit while in the process of reorganizing its finances. This financing is secured by the company's assets and is often necessary to provide the needed working capital that allows the company to continue operating while it restructures. DIP financing is considered senior debt and takes priority over other claims in bankruptcy cases.

A Bankrupt Firm While Being in the Process of Developing