Business Chapter 7: Dissolution v. Discharge

When it comes to the world of bankruptcy, the terms, rules, and regulations can be overwhelming for someone without a financial background.  Part of the aim of our blog is to break down the walls of the bankruptcy world and provide you with tips, advice, and explanations that demystify bankruptcy.  Today, we’d like to direct that focus toward Business Chapter 7 bankruptcy.

A Key Distinction

Business Chapter 7 is a form of bankruptcy in which businesses that have incurred more debt than can be repaid can get rid of their debts.  Chapter 7 is generally known as being a form of liquidation bankruptcy.  Unlike Chapters 11 and 13, Chapter 7 allows the case’s trustee to liquidate and sell assets in order to repay creditors.

After the assets are sold, there’s still some remaining debt, of course.  However, these debts are not discharged.  In personal Chapter 7 cases, debts are discharged.  But, in business Chapter 7, those debts still remain in theory.  Instead of discharging the debts, the court orders that the business entity (whether a corporation, partnership, or some other form) be dissolved.

For most people’s purposes, the results are the same.  However, the distinction is important to note because dissolution and discharge are two entirely different things!