Commercial bankruptcy is when companies seek to reorganize their operations and debts through chapter 11 bankruptcy protection. Businesses can remain open during this time, and creditors must cease all collection activities.
In this article, our Nevada bankruptcy attorneys discuss:
- 1. What is commercial bankruptcy in Nevada?
- 2. How does chapter 11 bankruptcy work?
- 3. Which businesses are eligible for chapter 11?
- 4. What are the costs?
- 5. What is the Small Business Reorganization Act?
- 6. Can businesses file for chapter 13 instead?
- 7. Can businesses file for chapter 7 and stay open?
1. What is commercial bankruptcy in Nevada?
Commercial bankruptcy is when a business – as opposed to an individual or married couples – seeks debt relief through bankruptcy protection. Most business bankruptcy cases involve filing for chapter 11, which allows the company to continue operating while restructuring its debt and implementing a reorganization plan.1
In some cases, chapter 11 bankruptcy can save businesses and even make them stronger in the long term by imposing long overdue mid-course corrections. But in other cases, businesses that file for chapter 11 are past the point of resuscitation, and chapter 11 merely serves as a legal mechanism for maximizing their remaining revenue potential while minimizing debt obligations.
Note that it may be preferable to avoid bankruptcy through commercial debt restructuring.
2. How does chapter 11 bankruptcy work?
The chapter 11 bankruptcy process in Nevada involves the following steps:
- The commercial entity files a voluntary petition with the U.S. Bankruptcy Court, District of Nevada. This bankruptcy filing must disclose the details of the business’s finances, such as assets, real estate holdings, and secured and unsecured debts.
- And as soon as the petition is filed, there is an automatic stay put on the business’s secured and unsecured creditors – such as mortgage lenders and credit card companies – from seeking foreclosure or repayment. And the company can remain open and in operation while a business reorganization plan is being instituted.
- A creditors’ committee is appointed by the U.S. trustee, and there is a section 341 meeting where the trustee and creditors question the business owner or agent under oath.
- The company files a reorganization plan with the bankruptcy court, voted on by the creditors. And the judge holds a confirmation hearing to approve the plan or not.
- The company then must file monthly operating reports, pay quarterly fees, and make payments in accordance with the reorganization plan for as long as the case is open. During this time, the trustee oversees the company’s compliance.
Note that the bankruptcy code offers a more streamlined process for qualified small businesses.2 (This is discussed below in question 5.)
3. Which businesses are eligible for chapter 11?
Nearly all businesses can file for chapter 11 bankruptcy in Nevada. There are no debt limits or revenue requirements.3
4. What are the costs?
In order to file for chapter 11 bankruptcy in Nevada, the business must pay the following:
- $1,167 case filing fee; and
- $571 administrative fee.
If the business cannot pay this upfront, then it can be made in four installments within 120 days of the filing (or 180 days if the court agrees to extend the deadline).4
5. What is the Small Business Reorganization Act?
The Small Business Reorganization Act (SBRA) of 2019 makes the chapter 11 bankruptcy process cheaper, quicker, and less complicated for small businesses with debts of no more than $3,024,725. (This debt limit is set to change on March 31, 2025.)
Five main improvements the SBRA makes for small business debtors are that it:
- Delays the deadline to pay administrative expense claims.
- Streamlines reorganization by allowing the business to propose its own reorganization plan without votes from a creditors’ committee. (This plan must be filed within 90 days of the chapter 11 petition.)
- Allows the business to modify residential mortgages if the loan was primarily used in connection with the business.
- Allows the court to appoint a case trustee to oversee the process.
- Removes the rule that the business’s equity holders provide new value in order to keep their interest without paying creditors in full.5
6. Can businesses file for chapter 13 instead?
Only sole proprietors may be eligible for chapter 13 bankruptcy protection (as long as the business earns regular revenue). Corporations, partnerships, and LLCs are not eligible to file for chapter 13.
Like chapter 11 bankruptcy in Nevada, chapter 13 bankruptcy requires the filer to abide by a repayment plan. But unlike chapter 11, chapter 13 has debt limits. Up through March 31, 2025, a chapter 13 filer’s debt may not exceed:
- $1,395,875 in secured debts; and
- $465,275 in unsecured debts.
But filers are automatically disqualified from chapter 13 bankruptcy protection if either:
- they had an earlier bankruptcy petition dismissed in the prior 180 days from a willful failure to show up to court or comply with court orders;
- they voluntarily dismissed an earlier bankruptcy in the prior 180 days after lien-holding creditors sought relief through the bankruptcy court; or
- in the prior 180 days, they received no credit counseling (unless there were not enough credit counseling agencies to provide counseling).6
7. Can businesses file for chapter 7 and stay open?
No. Once a business files for chapter 7 bankruptcy in Nevada, it must cease operations and go out of business. The court appoints a case trustee to implement a liquidation of its real property and other assets. The proceeds are then used to pay off creditors.7
Seeking a financial “fresh start” in Nevada? Call our bankruptcy law firm today for legal advice on the best way forward for you. Our Las Vegas, NV bankruptcy lawyers have years of experience.
Our Las Vegas office serves clients throughout the state, from Henderson to Reno. And our practice areas also include personal injury and criminal defense.
- 11 U.S.C. Chapter 11. See, for example, In re Escarcega (United States Bankruptcy Appellate Panel for the Ninth Circuit, 2017) 573 B.R. 219. In re Shat (United States Bankruptcy Court for the District of Nevada, 2010) 424 B.R. 854.
- 11 U.S.C. §§ 301, 303. Fed. R. Bankr. P. 1007(b). 11 U.S.C. § 1101. 11 U.S.C. § 1107(a). 11 U.S.C. §§ 1121, 1125. 11 U.S.C. § 1125. 11 U.S.C. § 1123. 11 U.S.C. § 1126. 11 U.S.C. § 1128. 11 U.S.C. §§ 1106, 1107; Fed. R. Bankr. P. 2015(a). 11 U.S.C. § 1102(a)(3), 11 U.S.C. § 1116. 11 U.S.C. §§ 308, 1116, 1187. 28 U.S.C. § 586(a)(7). 11 U.S.C. § 1183. 28 U.S.C. § 586. 11 U.S.C. § 1121(e). 11 U.S.C. § 1189. 11 U.S.C. §§ 1125(f), 1181, 1187. 11 U.S.C. § 1125. 11 U.S.C. § 1191. 11 U.S.C. § 101(51C)). Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). 11 U.S.C. § 341. 28 U.S.C. § 1930(a)(6). 11 U.S.C. § 1103. 11 U.S.C. § 362(a). 11 U.S.C. § 362(b). 11 U.S.C. § 362(d).
- See note 1.
- 28 U.S.C. § 1930(a). Fed. R. Bankr. P. 1006(b). Fed. R. Bankr. P. 1006(b). 11 U.S.C. § 1112(b)(10).
- Small Business Reorganization Act (SBRA).
- U.S.C. Chapter 13.
- U.S.C. Chapter 7.