Commercial debt restructuring in Nevada is when a business reorganizes its debts in attempt to avoid filing for bankruptcy.
By remaining out of court, businesses and their creditors can negotiate more customized, creative solutions that fit their needs. And businesses can usually save a lot of time and legal costs by settling their debts out of court.
In this article, our Las Vegas bankruptcy attorneys discuss:
- 1. What is commercial debt restructuring in Nevada?
- 2. How do I go about it?
- 3. Is commercial debt restructuring better than filing for Chapter 11 bankruptcy?
- 4. What about Chapter 13 or Chapter 7 bankruptcy?
1. What is commercial debt restructuring in Nevada?
Commercial debt restructuring is when a company reorganizes its inner workings in attempt to remain operational while also paying off its debts.
The most successful commercial debt restructuring plans accomplish the following goals:
- reducing debt through an affordable debt repayment plan
- increasing liquidity (sometimes with the help of a commercial financing loan)
- maintaining positive business relationships with creditors
- avoiding filing for bankruptcy
- continuing operations
Depending on a business’s needs, commercial debt restructuring can take many forms, including:
- debt consolidation
- restructuring of credit card debts and/or bank loans
- converting debt into equity shares
- postponing repayment
- lessening interest rates
In short, commercial debt restructuring is a “mid-course correction” that businesses take to manage their debts and raise capital while keeping their doors open. Sometimes only small changes are needed. Sometimes the entire business model must be overhauled.
Corporate debt restructuring is usually preferable to filing for bankruptcy because the business retains more control.
2. How do I go about it?
Struggling Nevada businesses may retain a commercial finance and advisory firm to help them restructure their debts. These firms typically work on a contingency fee basis, so they have every incentive to help the business succeed.
There are also various software programs available to help businesses create a customized way to restructure their debts. Users input the business’s financial information, and it returns methods of reducing debt and increasing cash flow.
Some business owners attempt to restructure debts themselves by negotiating directly with their creditors. This is certainly the cheapest and most effective method as long as the creditors are reasonable, cooperative, and patient. But many business owners benefit in the long-term from outside companies taking the helm.
3. Is commercial debt restructuring better than filing for Chapter 11 bankruptcy?
Commercial debt restructuring is the bankruptcy equivalent of settling out of court. Some of the advantages of commercial debt restructuring over filing for Chapter 11 bankruptcy are:
- The business owners remain in the driver’s seat and are not beholden to a court or creditors’ committee.
- The business does not have to pay expensive bankruptcy filing fees and other court costs or administrative costs.
- Debt restructuring does not damage the business’s reputation, brand and goodwill as much as filing for bankruptcy does.
- Commercial debt restructuring can be very quick, while bankruptcy is a long, drawn-out process.
- Business debt restructuring can often save relationships with creditors and customers, whereas filing for bankruptcy often ruins these relationships and turns off potential future business partners.
- In commercial debt restructuring, the parties can be creative and come to personalized solutions that work best for them without having the court impose unrealistic conditions.
- Commercial debt restructuring can remain confidential between the parties, while bankruptcy filings are usually public information viewable by anyone.
- Even if the business intends to close due to debt problems, commercial debt restructuring often offers an easier, quicker exit than bankruptcy.
Ultimately, the goal of commercial debt restructuring and chapter 11 bankruptcy is the same: Instituting a repayment plan with creditors while remaining open for business. But by avoiding bankruptcy, the business remains in a stronger position of power.
Sometimes filing for Chapter 11 is the most advantageous route for businesses. This is especially true if the creditors are unwilling to negotiate and are threatening legal action. But before they take this step, businesses are encouraged to consult with outside counsel to access their situation and discuss their options.1
4. What about Chapter 13 or Chapter 7 bankruptcy?
Like Chapter 11 bankruptcy, Chapter 13 bankruptcy involves instituting a reorganization plan so the business may remain open while creditors get paid. But the only businesses eligible to file for Chapter 13 bankruptcy are:
- sole proprietors that
- earn a regular revenue, and
- have debts not exceeding $1,395,875 in secured debts and $465,275 in unsecured debts.2
In contrast, there are no debt limits to file for Chapter 11 bankruptcy. And businesses of any size can file.3
Meanwhile, businesses that file for Chapter 7 bankruptcy cannot remain open. The whole purpose of Chapter 7 is to liquidate assets to pay off creditors.4
Many businesses hire a firm to assess its situation and institute a repayment plan to avoid commercial bankruptcy.
Questions? Contact our Las Vegas bankruptcy attorneys for legal advice.
Legal References
- 11 U.S.C. Chapter 11. See also Citizens Bank v. Alafabco, Inc. (2003) . See also, In re Escarcega (United States Bankruptcy Appellate Panel for the Ninth Circuit, 2017) 573 B.R. 219.
- 11 U.S.C. Chapter 13.
- See note 1.
- 11 U.S.C. Chapter 7.