Nevada bankruptcies skyrocketed in 2008, statistics show

With the state’s economy in a free fall, the number of bankruptcy filings in Nevada exploded last year.

Bankruptcy petitions in the Silver State jumped 71 percent during 2008; the average national increase was 31 percent.

“It’s going to take some real economic magic” to recover from the recession locally and nationally, said David Ehlers, chairman of Las Vegas Investment Advisors.

Nevada business bankruptcy filings climbed 57 percent from the previous year, according to the U.S. Administrative Office of the Courts. The number of nonbusiness bankruptcy petitions rocketed 71 percent higher.

The Southern Nevada economy “is disproportionately built upon gaming and real estate sectors, and both are very hard-hit sectors,” said Gregory Garman, a bankruptcy attorney and managing partner of law firm Gordon Silver.

He attributed the swelling number of business bankruptcies to the deteriorating economy, tightening of credit markets and collapse in real estate values. Some businesses with real estate are getting hit with a double whammy; not only is it hard for them to borrow because of tight credit but their real estate holdings have less and less value as collateral for loans, he said.

Many analysts privately wonder which major casino operator will file first for bankruptcy, potentially wiping out stockholders.

Wynn Resorts Ltd. appears to be one of the financially strongest of the major publicly held Strip casino operators, having raised more than half a billion dollars with secondary stock offerings over the past six months. The company raised $182 million from a common stock offering in March and $348 million with an equity offering in November.

MGM Mirage is struggling to stay out of bankruptcy while finishing the $8.6 billion CityCenter .

Other financially stressed operators include Station Casinos and Harrah’s Entertainment, which took on additional debt to go private.

Casino operators could reduce their debt load by filing for Chapter 11 bankruptcy, which allows them to continue operating, but they would be forced to seek bankruptcy court approval before making moves and would bear onerous legal expenses.

“Bankruptcy is an expensive, expensive option,” Ehlers said.

As business finances blow up, employees are getting laid off or working for less pay, sometimes leading to personal bankruptcy petitions, said Tim Cory, a trustee for individuals and businesses in Chapter 7 bankruptcy cases. In Chapter 7, the debtor’s nonexempt assets are sold to pay creditors, but individual debtors may be able to retain their home, a car and $500,000 in retirement savings, he said.

As more people and businesses encounter financial difficulties and spend less, the recession is “just feeding off itself,” Cory said. “It will get better, but it’s not going to bounce back like it has in the past.”

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.