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Small Tennessee hospital seeks Chapter 11 protection

Small community hospitals all over the United States are facing severe financial pressure to remain solvent. The pressure comes from two sources: the expansion of large medical companies and increasing costs. These factors have forced a small hospital in western Tennessee to go through a forced business bankruptcy under Chapter 11.

The Lauderdale Community Hospital in Ripley, Tennessee, has faced obstacles for months. In February of this year, a federal judge appointed a receiver to manage the hospital's financial affairs. Now, the receiver has filed a motion requesting permission to file a Chapter 11 petition on behalf of the hospital. In the motion, the receiver alleged that the hospital cannot pay its operating expenses and critical vendors without the protection of Chapter 11. A local bank added its weight to the motion by offering to provide "an immediate short-term influx" of necessary funds upon the filing of the Chapter 11 petition.

The bankruptcy judge has granted the motion, in part because the hospital failed to respond to the motion. The judge noted that the hospital's silence, in combination with its earlier failure to explain the financial confusion at the hospital, is "one more factor" in favor of granting the motion. In the motion papers, the receiver listed the hospital's assets as between $1 million and $10 million, and liabilities were stated to be in the same range.

Community leaders appear to be working hard to keep the hospital operating. The county has assembled a management group that has provided a non-binding offer to take over and operate the hospital. A number of issues remain before the hospital will be able to file a plan of reorganization and leave Chapter 11 behind.

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