The Analytics of Recent Chapter 11 Filings

Chapter 11 bankruptcy filings are evolving again, shaped by shifting economic conditions and emerging legal strategies. In a recent webinar, Lex Machina specialists explored what those changes mean in practice for companies and their counsel restructuring corporate debt in the 2020s. Missed the webinar? Watch the recording here.

From Stability to Volatility 

For several years before the pandemic, Chapter 11 filings followed a remarkably steady pattern. That consistency broke down during and after Covid-19, as economic pressures and policy changes altered the restructuring landscape. 

As Laura Hopkins explained, low interest rates and accessible credit played a major role in pre-pandemic stability. “Companies that might otherwise have been under financial stress could refinance or restructure their debt outside of court,” she noted. “It wasn’t until 2020 and 2021 with the pandemic that we started to see that stability break.” 

Kevin Abessi pointed to more recent pressures that continue to drive higher filing volumes. “After years of cheap credit, companies have also been facing higher borrowing costs, which has worsened interest coverage ratios and ultimately pushed weaker debt-heavy businesses toward restructuring,” he said. “It’s just a different world now versus those early peak pandemic years.” 

The Impact of Subchapter V 

One of the most significant drivers of increased Chapter 11 filings has been the rise of Subchapter V cases under the Small Business Reorganization Act of 2019. 

“Subchapter V cuts out much of the procedural complexity of a traditional Chapter 11,” Laura said. “There’s no competing creditor plan, fewer hearings, less paperwork, tighter deadlines . . . The business can move forward faster toward confirmation.” 

She also highlighted why the option is attractive to smaller and larger companies alike. “Unlike a typical Chapter 11, the absolute priority rule doesn’t apply in Subchapter V. That means the business owner can retain ownership even if all creditors aren’t paid in full, as long as they commit” their disposable income to the plan over three to five years. 

Venue Trends and Strategic Forum Selection 

Districts like Delaware, the Southern District of New York, the Southern District of Texas, and the Central District of California remain popular due to experience and predictability. 

“Because these venues see so many cases, they’ve built a strong and consistent body of rulings,” Laura explained. “That gives lawyers confidence in how key issues like DIP financing or plan confirmation are likely to be decided.” 

Beyond those traditional venues, recent years have seen shifting hot spots for filings, driven in part by strategies like the “Texas Two-Step”, in which a corporate defendant reincorporates in Texas to avail itself of the state's divisional-merger statute, which allows a company to split itself into two entities and allocate its assets and liabilities between the resulting companies.” A company might do this, for example, if struck with a judgment for large damage awards in a mass tort case. 

Analytics for Restructuring Success 

The Lex Machina platform enables seamless access to enhanced bankruptcy court dockets, timing analytics, and experience metrics for judges, law firms, and attorneys. As Laura explained, “What makes Lex Machina special is that we enhance this basic data through manual review by subject matter experts combined with machine learning techniques.” That enables risk professionals and in-house counsel to anticipate potential outcomes and retain the right outside counsel.  

“With Lex Machina, teams can compare data from Delaware, New York, Texas... wherever, to figure out which court may be more favorable with respect to particular fact patterns,” Kevin said. “That’s incredibly useful when you’re trying to plan strategy or talk through options with the board.” 

Ready to see what the trends mean for your team? Click here.