Are Private Bankruptcy Lenders Necessary?

When it comes to bankruptcy in the United States, private bankruptcy lenders are often needed at the corporate level.  Private bankruptcy lending occurs when a lender loans money to a company going through a Chapter 11 bankruptcy reorganization. The business will use this money to stay open while it undergoes the bankruptcy process. It is called private bankruptcy lending or debtor in possession financing.

Types of Bankruptcy

There are three main kinds of bankruptcy in the United States. Chapter 7 and Chapter 13 bankruptcies are typically personal or individual in nature.  Some businesses file a Chapter 7.

A Chapter 11 bankruptcy is a company bankruptcy and usually requires more resources to solve the problem than a personal bankruptcy does. Chapter 11 bankruptcies are the least common kind of bankruptcy and account for approximately 1 percent of all bankruptcies.

In addition to legal resources, the company often wants to stay afloat. This is where private bankruptcy lenders come in.

How to Arrange Financing

A company will usually arrange for private bankruptcy lending before they file for bankruptcy. When they file for bankruptcy, their filing will be made public. This kind of financing will vary by the company but is typically larger than what the company actually needs.

This is to ensure the business will stay afloat through bankruptcy, and often begins with a lien on receivables.

There is no law to say who you can or can not use as private bankruptcy lenders. You may use an existing lender, or seek out alternatives. Know that you have options when your business hits this bump in the road.

Yes, it’s just a bump. Private bankruptcy lenders are there to help.

Heron Nelson

Heron is a business blogger with a focus on personal finance and wealth management. With over 7 years of experience writing about financial topics, Heron has established herself as a trusted voice in the personal finance space. She has a deep understanding of financial concepts and strategies, and is able to explain them in a relatable and actionable way for her readers.