Business bankruptcies may involve different aspects than a personal bankruptcy, but there are some overlapping similarities. As with a personal bankruptcy, there are two basic outcomes to a business bankruptcy filing: a discharge or a dismissal. A debt discharge is generally the sought after outcome in any type of bankruptcy filing, but there are times in which the case is dismissed instead.
Chapter 11 Bankruptcy
When a business files for Chapter 11 they are seeking debt reorganization, which allows them to remain in operation while they work to resolve their debts and regain profitability. Generally, a Chapter 11 case is pursued when a company has suffered substantial profit loss and/or is carrying overwhelming debts it cannot afford to repay in a traditional manner. While pursuing debt reorganization through Chapter 11 can be effective for most businesses, there are circumstances in which a company may not be able to obtain a debt discharge and must face other alternatives.
The debtor may request to have the Chapter 11 case dismissed. If the Chapter 11 plan is not producing the desired outcome or the debt reorganization plan is not confirmed by the court, it may make more economic sense for the case to be voluntarily dismissed. This leaves the company free to pursue debt resolution outside of bankruptcy. The court may also have the case dismissed for many reasons such as failure to meet filing requirements, make payments as specified, attend a meeting of creditors or provide the required documentation.
There is another alternative to a dismissal that can be pursued. If it becomes clear that the company cannot sustain operations or the court determines it is in the best interest of the creditors, the case may be converted to a business Chapter 7 case. In this instance the filing would be turned into a liquidation case, in which debts would be resolved by selling the remaining assets in order to satisfy creditors.