Immediately upon a business entity’s filing of a petition under chapter 7 of the Bankruptcy Code, the business entity becomes a “debtor” and its property becomes a chapter 7 “estate” in the custody of a chapter 7 trustee. The chapter 7 trustee is a lawyer or financial professional who has been selected on a rotating basis from a “panel” of chapter 7 trustees. The debtor’s former ownership and management are ousted from control. The chapter 7 trustee collects all assets of the debtor’s estate (which may include potential lawsuits against […]

In large chapter 11 cases, the diffuse interests of a large number of creditors may be at stake. Bankruptcy law addresses potential collective action problems (see the brilliant  Mancur Olsen, Jr., The Logic of Collective Action: Public Goods and the Theory of Groups (1965)) by providing that the U.S. Trustee may appoint the membership of an official committee of unsecured creditors (often called “the committee”) having a fiduciary duty to all such creditors. The committee is usually composed of an odd number of the largest unsecured creditors that are willing to serve.  […]

Immediately upon a business entity’s filing of a petition under chapter 11 of the Bankruptcy Code, the business entity becomes a “debtor-in-possession” or “DIP” ( a type of “debtor” within the lingo of bankruptcy) and its property becomes a chapter 11 “estate” in the custody of the DIP.  No trustee is appointed unless a party successfully moves for the appointment of a chapter 11 trustee, based upon certain problems, bad acts, or misadventures involved in DIP functioning.  To confuse the nomenclature further, section 1107(a) of the Bankruptcy Code provides that […]

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