A debtor-in-possession, or DIP, is a company that has filed for Chapter 11 bankruptcy in the United States and continues to control its own assets and operations instead of handing them to an independent trustee. The US Bankruptcy Code defines the term in a single line: section 1101(1) says a debtor in possession is the "debtor except when a person that has qualified under section 322 of this title is serving as trustee in the case." The arrangement exists because a trustee rarely knows a business as well as the people already running it, and because managers who expect to be removed tend to delay filing until little value remains.

For advertisers, publishers and ad tech vendors, the term matters whenever a counterparty goes under. A bankrupt supply-side platform, retailer or media owner usually keeps trading and selling inventory, but every decision outside the ordinary course is watched by a court and its creditors.

How the status works

The status begins automatically when a Chapter 11 petition is filed. Section 1107(a) gives it "the rights and powers" of a trustee, and the duties too, with exceptions. It cannot claim a trustee's fees and is spared certain investigative duties, and the court may add conditions.

The same board and executives stay in place, but they now act as fiduciaries for the estate - the pool of assets that belongs, in effect, to creditors and other stakeholders. Day-to-day work continues under section 363(c)(1), which allows the business to use estate property in the ordinary course without a hearing. Paying an ad server's hosting bill falls into that bucket. Anything unusual needs notice to creditors and court approval: selling a division, rejecting a lease, settling a large claim or borrowing money on new terms.

The first days of a large case bring a wave of first-day motions, asking permission to keep paying wages, honour customer programmes, maintain cash management systems and pay critical vendors. When Character.ai filed on October 12, 2026, its first-day requests sought to keep paying wages and benefits and to honour commitments to platform users and satisfy post-filing obligations to vendors and partners.

It also inherits the trustee's litigation powers, allowing it to claw back preferential payments made in the 90 days before filing and to unwind fraudulent transfers. The FTX debtors used those powers in a Delaware suit filed on November 8, 2024, seeking to recover more than $30 million paid to a marketing executive's companies.

Under section 1121(b), "only the debtor may file a plan" for the first 120 days. Courts may extend this exclusivity period, but since 2005 never beyond 18 months from the petition date.

DIP financing

DIP financing is credit extended to the debtor-in-possession after filing, under section 364 of the Code. The section sets out a ladder. Ordinary unsecured credit is allowed without a hearing. If lenders will not lend on those terms, the court may grant them priority over other administrative expenses, a lien on unencumbered assets or a junior lien. At the top is section 364(d), the priming lien, which ranks ahead of existing secured lenders. It is permitted only if credit cannot be obtained otherwise and the existing lienholder receives "adequate protection".

Procedure is set by Federal Rule of Bankruptcy Procedure 4001(c). A final hearing on a financing motion cannot begin until 14 days after service. Before then, the court may authorise only what is "necessary to avoid immediate and irreparable harm to the estate", which is why DIP loans typically arrive in two stages, interim and final.

23andMe, the genetic testing company, filed in the Eastern District of Missouri on March 23, 2025, with a commitment of up to $35 million from JMB Capital Partners, according to a company announcement. First Brands, an auto parts supplier, received interim approval in Texas on October 1, 2025, for a $4.4 billion facility, of which $1.1 billion was new money, according to Debtwire.

Origin and evolution

The idea predates the modern Code. The Chandler Act of 1938 created two routes for business rehabilitation. Chapter X, intended for larger corporations, generally required a disinterested trustee and allowed participation by the Securities and Exchange Commission (SEC). Chapter XI let the debtor stay in control but could only restructure unsecured debt. The Supreme Court described the contrast on May 27, 1940, in SEC v. United States Realty & Improvement Co., observing that a Chapter XI proceeding is "under the control of the debtor".

Companies preferred Chapter XI, and the boundary was heavily litigated. The Bankruptcy Reform Act of 1978, signed by President Jimmy Carter on November 6, 1978, merged the old business chapters into a single Chapter 11 and made the debtor-in-possession the default, with a trustee appointed only "for cause". The new Code applied to cases filed from October 1, 1979.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 capped exclusivity extensions at 18 months for filing a plan and 20 months for winning acceptance. Lenders later learned to steer cases through DIP loan terms - milestones, budgets and sale deadlines - rather than through trustees.

The model has also spread. The European Union's Restructuring Directive, adopted on June 20, 2019, requires in Article 5 that debtors "remain totally, or at least partially, in control of their assets" during preventive restructuring. Member states had until July 17, 2021, to transpose it. The United Kingdom's Corporate Insolvency and Governance Act 2020 added a moratorium in which directors stay in charge under a licensed monitor.

Why it matters for marketing

The QVC Group filing of April 16, 2026, in Houston sought to cut funded debt by about $5.3 billion while the shopping channels kept broadcasting, with JPMorgan Chase acting as agent for a DIP letter of credit facility. PPC Land had documented the cable decline behind it.

For trading partners, the status determines who gets paid. Invoices owed before the petition become pre-petition claims, often recovered at a fraction of face value. Services supplied after filing are administrative expenses, paid ahead of most unsecured creditors. When EMX, a supply-side platform, and its parent Big Village filed in Delaware in February 2023, publishers complained publicly about months of unpaid revenue. Sizmek's March 2019 filing listed $64.7 million in claims across eight petitions, before Amazon agreed to buy its ad server and dynamic creative business.

Data is the other exposure. A debtor-in-possession can sell customer records as estate assets. In the Spirit Airlines case, an August 14, 2026, auction ended with Google as the winning bidder at $10 million for the airline's deidentified data. 23andMe's genetic database drew similar scrutiny: California's Attorney General opposed the sale of Californians' genetic information in the bankruptcy. The UK Information Commissioner's Office suspended enforcement of a £2.31 million fine pending the outcome of the proceedings.

Limitations and disputes

The central criticism is that the people who led a company into insolvency keep running it. Section 1104 lets a court appoint a trustee for "fraud, dishonesty, incompetence, or gross mismanagement", but such appointments are uncommon. Creditors more often press for new directors or a chief restructuring officer, as at FTX, where John J. Ray III replaced Sam Bankman-Fried as chief executive on the day of filing.

A second dispute concerns lender control. Roll-ups allow a DIP lender to convert its pre-filing debt into post-filing debt with superpriority, improving its position at the expense of other creditors. Debtwire counted creeping roll-ups in four of 16 DIP facilities filed in January and February 2026, against one in the fourth quarter of 2025. In First Brands, the unsecured creditors' committee argued that a $3.3 billion roll-up "materially deviates from accepted bankruptcy norms" and that liens on the estate's legal claims amounted to "a federal foreclosure", according to Debtwire. Lenders called the facility "arguably among the riskiest in recent history".

Milestones in DIP loans can also force a quick sale before other bidders appear. The debtor-in-possession remains in charge on paper; in practice, its lender sets the budget.

Not the same as

Trustee. A Chapter 11 trustee is an outsider appointed under section 1104 who displaces management. In Chapter 7 liquidation, a trustee always takes over, so no debtor-in-possession exists.

DIP financing. The loan, not the borrower. The two share an abbreviation, and trade press often uses "DIP" for both.

Examiner. Also appointed under section 1104, an examiner investigates and reports but does not run the business. Appointment is mandatory on request where qualifying unsecured debts exceed $5 million.

Administrator or receiver. In UK administration, an insolvency practitioner takes control, the opposite of the US default. A receiver acts for one secured creditor.

The stalking horse bid and the Section 363 sale, covered in separate explainers, describe how a debtor-in-possession sells assets.

Recent developments

Two cases from October 12, 2026, show the status at work in media and AI. Character Technologies, the company behind Character.ai, filed in the District of Delaware with a $20 million stalking horse offer from Disney for a licence to certain intellectual property, not the chatbot platform itself. Colin Adams, its chief executive, said a "court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders."

On the same day, Getty Images announced a restructuring support agreement and a planned prepackaged Chapter 11 case, weeks after the NYSE halted trading at 12 cents and opened delisting proceedings with $1.47 billion of debt outstanding. Getty family members and affiliates of Koch Equity Development committed up to $533 million in new equity, and Koch would provide up to $143 million to fund the process, according to the company. As of October 13, 2026, no petition had been reported.

Timeline

  • June 22, 1938 - Chandler Act creates Chapter X (trustee-led) and Chapter XI (debtor-controlled) business proceedings.
  • May 27, 1940 - Supreme Court decides SEC v. United States Realty & Improvement Co., contrasting the two chapters.
  • November 6, 1978 - President Carter signs the Bankruptcy Reform Act, creating Chapter 11 with the debtor-in-possession as default.
  • October 1, 1979 - New Bankruptcy Code applies to cases filed from this date.
  • April 20, 2005 - Bankruptcy Abuse Prevention and Consumer Protection Act signed, capping exclusivity at 18 and 20 months.
  • March 2019 - Sizmek files for Chapter 11 in the Southern District of New York.
  • June 20, 2019 - EU adopts the Restructuring Directive, with a debtor-in-possession principle in Article 5.
  • June 25, 2020 - UK Corporate Insolvency and Governance Act 2020 receives Royal Assent.
  • July 17, 2021 - Deadline for EU member states to transpose the Restructuring Directive.
  • November 11, 2022 - FTX files for Chapter 11; John J. Ray III takes over as chief executive.
  • February 2023 - EMX and parent Big Village file for Chapter 11 in Delaware.
  • March 23, 2025 - 23andMe files in the Eastern District of Missouri with up to $35 million in DIP financing.
  • June 30, 2025 - 23andMe announces court approval of a $305 million sale to TTAM Research Institute.
  • August 29, 2025 - Spirit Airlines files for Chapter 11 in the Southern District of New York.
  • October 1, 2025 - First Brands wins interim approval of a $4.4 billion DIP facility.
  • April 16, 2026 - QVC Group files a prepackaged Chapter 11 case in Houston.
  • August 2, 2026 - Hughes files for Chapter 11 in Houston.
  • August 14, 2026 - Spirit Airlines data auction ends with a $10 million winning bid.
  • October 12, 2026 - Character Technologies files in Delaware; Getty Images announces a planned prepackaged Chapter 11 case.

Summary

Who: Companies that file under Chapter 11 of the US Bankruptcy Code and keep their own management, supervised by a bankruptcy judge, the US Trustee and creditors' committees; lenders who fund them through DIP financing.

What: A debtor-in-possession is the bankrupt company itself, holding a trustee's rights, powers and duties under section 1107, running its business while it negotiates a reorganisation plan or sells assets.

When: The concept dates from Chapter XI of the Chandler Act of 1938 and became the default under the Bankruptcy Reform Act of 1978, effective October 1, 1979. Recent media and ad tech examples include QVC (April 2026), Hughes (August 2026) and Character.ai (October 12, 2026).

Where: US bankruptcy courts, with large cases concentrated in Delaware, the Southern District of Texas and the Southern District of New York. The EU Restructuring Directive and the UK's 2020 reforms adopted similar principles.

Why: Keeping managers in place preserves operating knowledge and encourages earlier filings, but critics argue it rewards the people who caused the failure and hands effective control to DIP lenders.