New research by Hosein Maleki, Mahsa Kaviani, Simi Kedia, and Shay Pourvosoughi shows that women-owned firms are less likely to get a second chance after filing for bankruptcy and that the gap between male- and female-owned firm filings widens when courts are overloaded.
For years, the conversation about women in entrepreneurship has focused on the barriers at the front end of the business lifecycle: access to capital, investor bias, sector choice, and the obstacles women face when starting and growing firms. But another question remains that may matter just as much in determining whether entrepreneurship is truly open to women: What happens when a business fails?
That is the question at the center of our new research. In the United States, bankruptcy can result in multiple paths: Chapter 7 and Chapter 11. Chapter 11 is generally more desirable, as it offers businesses a second chance, while Chapter 7 is the liquidation path intended to shut down a company and settle outstanding debts. When a business owner files for Chapter 11 bankruptcy, the case can end in four ways: discharge of debt, conversion to Chapter 7, dismissal, or transfer to another court, though the last outcome is quite rare. The most favorable outcome is a debt discharge, which gives the business a fresh start and allows it to emerge from bankruptcy successfully. By contrast, dismissal is generally unfavorable because it strips away bankruptcy protections and leaves the business exposed to creditors, who may then seize assets or pursue other collection actions. Conversion to Chapter 7 is also a negative outcome, as it means the judge has determined that reorganization is not viable and that liquidation is the better path so creditors can recover what they are owed.
We study small-business bankruptcy in the U.S. and find that the gender gap in entrepreneurship does not end when a firm falls into distress. In some ways, it becomes sharper. Female-owned firms are less likely to be granted the opportunity to reorganize and more likely to be pushed toward liquidation than similar male-owned firms. That disadvantage becomes especially pronounced when bankruptcy courts are congested.
This matters because bankruptcy is not just a technical legal process. For many small firms, it is the last major institutional checkpoint which determines whether a struggling business gets a chance to reorganize and survive, or whether it is liquidated and shut down. If that process works differently for women, then the potential risk of entrepreneurship is itself gendered. The playing field is not just uneven at entry. It is uneven at exit, too.
Female-owned firms are less likely to survive bankruptcy
Our study is based on a new dataset of more than 180,000 U.S. small-business bankruptcy filings compiled by LexisNexis and linked to owner and firm information. We track who filed, under which chapter, before which judge, with which attorney, and with what outcome. We also link a subset of firms to 1.9 million Small Business Administration (SBA) loan records to examine whether female- and male-owned businesses looked different.
The first pattern is stark. Female-owned firms are more likely to enter bankruptcy through Chapter 7 liquidation, which generally means firm closure, rather than Chapter 11 reorganization, which offers businesses the possibility of survival. In our data, female-owned firms are 24 percent more likely to file under Chapter 7. This is often driven by creditors anticipating a Chapter 11 rejection and choosing to avoid the costs and delays of a failed restructuring effort by immediately filing under Chapter 7. When women are more likely to end up in liquidation at the outset, that already suggests a system in which second chances are less available to them.
The second pattern is even more troubling. Conditional on filing under Chapter 11, female-owned firms are less likely to receive a discharge and more likely to be converted or dismissed. In other words, the disadvantage appears on two margins. Women are less likely to attempt reorganization in the first place, and less likely to succeed when they do.
A natural response is to ask whether women-owned firms entering bankruptcy are simply weaker. Perhaps they are smaller, riskier, or less viable before reaching court. The evidence does not support creditworthiness as the simple explanation.
Using 1.9 million SBA loan records, we find little evidence that female-owned firms look worse than male-owned firms before or after filing. Female-owned firms often borrow less, which is consistent with long-standing financing constraints, but they match male-owned businesses on observable credit-risk measures such as loan pricing or charge-off rates. More strikingly, when we match those SBA loans to the subset of firms that later appear in bankruptcy, female-owned firms look somewhat stronger than male-owned firms on observable credit-quality measures: they still carry smaller loans, but appear modestly stronger on indicators such as interest rates and charge-off incidence. Taken together, this evidence points away from a simple story in which women-owned firms fare worse in bankruptcy because they enter the process with weaker underlying fundamentals.
The court system creates a bankruptcy gap
To better understand what drives the gap, we examine several potential mechanisms, one of which is judicial caseload congestion. The most striking result in the paper is that the female disadvantage widens sharply when judges are busier. Female-owned firms assigned to high-caseload judges are 11 to 12 percentage points less likely to receive a Chapter 11 discharge than comparable male-owned firms.
To test for plausibly exogenous shocks that generate unexpected increases in judicial caseload, we assess shocks such as judicial deaths, sudden departures, and premature retirements, which abruptly increase the workload of the remaining judges. This allows us to test more cleanly whether a rise in congestion leads to a larger gender gap in rulings. After those vacancy shocks, the female debt discharge gap in Chapter 11 outcomes widens: female-owned firms become 7.5 to 8.8 percentage points less likely to receive a discharge in the two years that follow.
That finding matters because it suggests the problem is not simply about a handful of unusually harsh judges. Nor does it seem to be mainly about the gender of the judges. We find little evidence that female judges systematically eliminate the gap, or that generally more lenient judges do either. What matters most is whether the court is overloaded.
The implication is important. Court congestion does not just slow cases down. It can change who gets a real second chance. One way to understand this is through the lens of limited attention. In high-pressure environments, decision-makers may rely more heavily on coarse signals and less on careful, case-specific evaluation. That does not require explicit animus; it only requires that overloaded institutions fall back on cruder forms of screening. If gender becomes one of the cues that receives too much weight under those conditions, then congestion can produce unequal outcomes even without overt discrimination. Our evidence is consistent with exactly that mechanism.
We also suggest that entrepreneurs may understand this. Women are more likely to file under Chapter 7 in districts where courts are more congested and where past outcomes have been less favorable to female-owned firms. That pattern is consistent with anticipated disadvantage. If the system appears less likely to give you a fair shot at reorganization, avoiding Chapter 11 may be a rational response, effectively saving time and resources, rather than a sign of greater risk aversion or weaker firms.
Attorneys matter as well, but in a specific way. Experienced, high-volume attorneys partly reduce women’s tendency to avoid Chapter 11. They seem to help female-owned firms enter the reorganization process in the first place. But they do not eliminate the discharge gap once the case is before the judge. This suggests that legal representation can help women access the forum, but cannot fully offset what happens inside an overloaded institution.
These findings have implications beyond bankruptcy law. Discussions of gender inequality in entrepreneurship usually focus on funding, networks, and growth opportunities. Our results suggest that policymakers and researchers should also pay more attention to institutional downside risk. If women know that failure will be treated differently, that can shape who starts firms, who takes risks, and who tries again after distress.
In that sense, bankruptcy courts are not peripheral to the entrepreneurial ecosystem. They are part of it.
If we want a more genuinely open economy, reducing court congestion should be seen not only as an efficiency reform, but also as an equity reform. More judicial capacity would help. So would greater transparency about bankruptcy outcomes across courts and judges. Better access to experienced legal counsel for distressed small businesses could matter too, especially if it helps women pursue reorganization rather than defaulting into liquidation. These are not just administrative improvements. They are changes that can affect who gets a meaningful chance to recover from failure.
The broader lesson is simple. A market economy does not only reveal its values in how it rewards success. It also reveals them in how it handles failure. If women-owned firms are less likely to receive a real second chance when they stumble, then the gender gap in entrepreneurship is being reproduced not only by markets, but by the institutions meant to govern economic recovery.
Authors’ Disclosure: The authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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