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Nashville Chapter 11 Bankruptcy Filings Surge in 2023


Chapter 11 is the version of bankruptcy that is typically used by businesses and individuals to restructure debt and continue as a more profitable enterprise. It is also used as a vehicle for companies to sell major assets, or sell the business as a going concern.


Chapter 11 filings surged in Nashville in 2023, as they did across the country. This article examines the recent increase in Chapter 11 filings in the U.S. Bankruptcy Court for the Middle District of Tennessee and looks at the types of cases being filed and why.


Nashville Chapter 11 Bankruptcy Filings By the Numbers

In total, 76 Chapter 11 cases were filed in Nashville in 2023. This was the highest number in several years, and more than triple 2020's total of 25 cases.


More Nashville Subchapter V Business Restructurings Than Ever Before

One factor that explains the higher number of business filings is the market's increasing familiarity with Subchapter V. As discussed in a prior post, Subchapter V is the streamlined version of Chapter 11 available to businesses and their owners with less than $7.5 million in debt (not including disputed, contingent or unliquidated claims). Subchapter V has been described as a game changer for overleveraged small businesses.


Market Factors Also at Play

While the economy has continued growing since the brief but deep Covid-19 recession, economic performance has been uneven for different companies in different sectors. More obviously, interest rates have increased dramatically since March of 2022. Higher borrowing costs create a particular strain for an company with maturing loans. Nashville Chapter 11 bankruptcy filings, and the numbers around the country, will likely continue to increase until interest rates decline.


Many Smaller Businesses are Using Subchapter V to Restructure EIDL and Other SBA Debts

Many of the small business Chapter 11 cases filed in Nashville in 2023 involved EIDL or other SBA debts. This makes sense, since according to the SBA, 4 million businesses were approved for $390 billion in EIDL funds following the Covid-19 pandemic. The limit per borrower was $2 million. Although EIDL loans came with an initial payment deferral, most or all are now in repayment. As discussed here, the nature of many EIDL loans means that Subchapter V can be an especially effective vehicle for restructuring them as part of an overall right-sizing of debt.

 
EmergeLaw, PLC helps businesses right-size debt

About EmergeLaw, PLC

EmergeLaw is a boutique law firm that represents small and middle market businesses and their owners in debt workouts, Chapter 11 reorganizations, Subchapter V restructurings, and other proceedings to help them deleverage and reposition for future success. Applying decades of experience and a specialized toolkit, our Nashville business restructuring attorneys help entrepreneurs, family businesses, private equity funded companies, and real estate investors maximize value in ways that many clients find unexpectedly efficient and effective.

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