What is a 363 sale?

Define it as a court-approved sale of a debtor's assets in Chapter 11, bought free and clear with liens moving to the proceeds. Explain speed as the reason, the stalking horse and its bid protections, the auction and credit bidding.

Updated October 20, 2026

The numbers, step by step

A stalking horse bid of $200 million, a 3% break-up fee and a $2 million minimum bid increment.

Break-up fee$200 × 3%

$6 million

Lowest rival bid$200 + $6 fee + $2 increment

$208 million

Estate's net after paying the fee$208 − $6

$202 million

What the interviewer listens for

• Do you define it as a court-approved sale under Section 363, usually in Chapter 11?
• Do you say the buyer gets the assets free and clear?
• Do you explain speed as the main reason to use it?
• Do you describe the stalking horse and the auction?
• Do you mention credit bidding?

Common mistakes

• Calling a 363 sale its own chapter of bankruptcy.It's a sale inside a bankruptcy case, usually Chapter 11, under one section of the Code.
• Saying the buyer takes on the debtor's liabilities.It buys free and clear, and the claims move to the proceeds.
• Treating a credit bid as cash.The lender bids its claim, up to its allowed amount, and the court can limit it.
• Forgetting the stalking horse's bid protections, which are why anyone agrees to go first.

Likely follow-ups

• Why would anyone be the stalking horse if they might lose?It gets the first look at the business, shapes the purchase agreement and bidding rules, and is paid the break-up fee and expenses if it's outbid.
• What happens after the sale closes?The proceeds go to creditors by priority, usually through a liquidating Chapter 11 plan, a structured dismissal or a conversion to Chapter 7.

More finance technicals

• A company in Chapter 11 is worth $600 million. Claims are a $50 million DIP, $10 million of admin claims, $300 million of first lien, $200 million of second lien, $150 million of unsecured bonds and $50 million of trade claims. Who recovers what?
• What is DIP financing, and why would anyone lend to a bankrupt company?
• Why would a company try an out-of-court restructuring first?
• What signs tell you a company is heading for distress?
• What's the difference between Chapter 11 and Chapter 7?

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