Understanding Corporate Bankruptcy in Nevada
Nevada’s business landscape is dynamic, yet unforgiving. Market shifts, supply chain disruptions, or unexpected litigation can quickly turn a profitable quarter into a solvency crisis. When cash flow tightens, business owners need more than just hope—they need a legal strategy.
At ABW Law Firm, we view corporate bankruptcy as a strategic tool to help you regain financial control, protect assets, and pursue either business survival or an efficient exit.
The Fiduciary Responsibility in the "Zone of Insolvency"
Before discussing bankruptcy chapters, it is vital to understand the obligations of business owners. When a corporation becomes insolvent (i.e., liabilities exceed assets), the fiduciary duties of its directors shift. You are no longer solely responsible to the shareholders; you now have a duty to the creditors to preserve the company's value.
Continuing to operate a business that has no hope of recovery and taking deposits you can't fulfill, or incurring debt you can't pay, can lead to personal liability. This is why consulting with a business bankruptcy lawyer early is critical. We help you navigate this dangerous "Zone of Insolvency" to ensure you are protected from allegations of fraud or mismanagement.
Strategic Reorganization vs. Liquidation
The primary decision for any distressed business is determining the end goal. Are you trying to save the company, or is it time to close the doors responsibly?
Chapter 7: The Orderly Wind-Down
When operations are no longer viable, a Chapter 7 lawyer provides a structured and transparent method for liquidating assets.
The Process: A court-appointed trustee takes control of the company assets, sells them, and distributes the proceeds to creditors.
The Benefit: It prevents the "race to the courthouse" where creditors sue one by one. It provides an orderly conclusion to the business, often mitigating the risk of "piercing the corporate veil" lawsuits against owners.
Chapter 11: Traditional Reorganization
This is the standard route for larger companies. It enables them to continue operating while undergoing restructuring. It is powerful, but can be costly and time-consuming due to the strict voting requirements imposed by creditors.
Subchapter V: A Game Changer for Small Enterprises
For years, traditional Chapter 11 bankruptcy was too expensive for small or mid-sized businesses. The introduction of Subchapter V Bankruptcy, through the Small Business Reorganization Act, has changed things.
Subchapter V is made to make debt reorganization easier. It takes away many of the paperwork and steps that made Chapter 11 too hard for smaller businesses.
Key Advantages of Subchapter V:
Faster Timeline: You must file a plan within 90 days. This speed significantly reduces legal fees and administrative costs.
No "Absolute Priority" Rule: In traditional Chapter 11, owners lose their equity if they don't pay creditors in full. Subchapter V allows owners to retain their ownership, provided they commit 3–5 years of projected disposable income to paying creditors.
No Disclosure Statement: You skip the lengthy and expensive process of drafting a separate disclosure statement for creditor approval.
Navigating Litigation and Creditor Relations
Bankruptcy rarely involves only one side. It requires a complex interplay of rights between the debtor and creditors. ABW Law Firm has experience representing both sides.
The Power of the Automatic Stay
Upon filing, courts rarely grant relief from the automatic stay immediately. The stay stops all collections, lawsuits, and foreclosures. This pause gives you time to negotiate.
Creditor Rights & Litigation
If you are a creditor, a debtor filing for bankruptcy does not mean you are out of options. We represent creditors in ensuring their rights are protected.
Secured Creditors: If you hold collateral (such as a building or equipment) and the debtor isn’t paying or maintaining insurance, we can file a motion to lift the automatic stay. This allows you to foreclose or repossess the property.
Unsecured Creditors: We ensure you join the Creditors’ Committee if applicable. We also make sure your voice is heard during negotiations.
Bankruptcy Litigation
Sometimes, the battle isn't about the plan, but about the conduct. We handle bankruptcy litigation involving:
Fraudulent Transfers: If a debtor transfers assets to a friend or relative immediately before filing to conceal them, we can sue to recover those assets.
Preferential Payments: If a debtor paid off one creditor right before filing but skipped others, we may be able to recover those payments.
Non-Dischargeability Actions: Proving that a specific debt was incurred through fraud and should survive the bankruptcy.
Pre-Packaged Bankruptcy: The Proactive Approach
For businesses that communicate openly with their creditors, a "pre-pack" may be the best option. This means you work out the main details with creditors before filing for bankruptcy.
Once most major creditors agree, you file for bankruptcy to bind remaining minority creditors to the deal. This reduces court time and minimizes business disruptions. ABW excels at these high-level negotiations.
Frequently Asked Questions
Q: What makes a business eligible for Subchapter V Bankruptcy?
A: The business must owe less than a certain amount (currently around $7.5 million, but this amount is subject to change). It must also be actively doing business. Subchapter V is best suited for solid companies burdened by debt.
Q: Can a creditor stop a bankruptcy filing?
A: A creditor generally cannot stop a debtor from filing, but they can challenge the validity of the case. If a bankruptcy petition was filed in "bad faith"—for example, solely to delay a legitimate trial without a real intent to reorganize—creditors can move to dismiss the case.
Q: Does corporate bankruptcy affect the owner's personal assets?
A: It depends on the business structure and contracts. In a corporation or LLC, personal assets are usually protected unless the owner signed personal guarantees. Many small business loans (SBA, lines of credit) do have these guarantees. We review all contracts to assess your personal exposure before filing your claim.
Secure Your Business Future
Whether you are a business owner seeking a lifeline or a creditor seeking payment, you need a legal partner who understands the nuances of Nevada law. Bankruptcy is a complex chess game; do not play it without a master strategy tailored to your role.
Contact ABW Law Firm today to discuss your options with a team that values expertise and efficiency.
