When a company files for Chapter 11 bankruptcy, the lights don't just turn off. It needs to keep operating, paying employees, and buying supplies. This requires cash, often in the form of new loans. But who would lend money to a bankrupt company? To solve this problem, the U.S. Bankruptcy Code provides a specific roadmap called Section 364. It outlines a tiered system of incentives and protections to encourage lenders to provide this crucial financing, known as debtor-in-possession or DIP financing . Section 364 is the legal framework that makes post-bankruptcy survival possible.

The simplest form of post-petition credit is governed by Sections 364(a) and 364(b). Section 364(a) allows a debtor-in-possession (the company managing its own bankruptcy) to obtain unsecured credit in the “ordinary course of business” without court approval. Think of a supplier extending its usual 30-day payment terms for raw materials. The business continues as usual.

If the company needs unsecured credit outside the ordinary course of business, like a one-time loan from a new lender, it must get court approval under Section 364(b). In both cases, these new debts are treated as administrative expenses. This gives them priority over pre-bankruptcy unsecured debts, but they still rank behind secured creditors.

What if no one is willing to lend on just an administrative expense basis? The company must then prove to the court that it cannot obtain credit otherwise. If successful, the court can offer stronger incentives under Section 364(c). This is where things get more serious. The court can grant the new lender a 'superpriority' administrative claim. This doesn't just put them at the front of the administrative expense line; it puts them ahead of all other administrative expenses. Essentially, they get paid first out of any unencumbered assets.

Section 364(c) also allows the court to grant the new lender a lien on unencumbered property or a junior lien on property that is already subject to a lien. This provides the lender with collateral, making the loan much more secure than a simple unsecured claim.

The most powerful, and controversial, tool in the Section 364 toolkit is the 'priming' lien, authorized under Section 364(d). This allows the court to grant a new lender a senior or equal lien on property that is already pledged as collateral to an existing lender. It's called a priming lien because it 'primes,' or leapfrogs, the existing lienholder's position.

Because this dramatically alters the original lender's rights, the bar is extremely high. The debtor must prove two things: first, that it absolutely cannot obtain credit on any other terms, and second, that the interests of the original, now-primed lienholder are 'adequately protected'. This protection is crucial and heavily negotiated. Without it, a court cannot approve a priming lien.

The entire DIP financing process is supervised by the court. Typically, the debtor first seeks approval for an interim DIP order on an emergency basis, allowing it to access a portion of the loan immediately to maintain stability. Later, after giving all creditors notice and an opportunity to object, the court holds a hearing for a final DIP order, which approves the full financing package. Throughout this process, the 'inability to obtain credit' standard is a constant evidentiary hurdle the debtor must clear at each escalating stage of Section 364.