The sting of a company declaring bankruptcy is often lessened when it’s Chapter 11 bankruptcy, i.e. a financial time-out to reorganize the numbers without actually going out of business.

But thanks to the ongoing financial flameout that’s drying up available credit lines big and small, the monetary structures that made Chapter 11 a viable option are no longer there:

In past, less severe downturns, [corporate bankruptcy lawyer Mark D.] Collins said, more companies faced the relatively simple problem of owing too much money. Lenders, creditors and the company’s management could work out a palatable plan, then file for bankruptcy protection and use the legal proceeding to wipe away some of the company’s debt. That is known as a “prepackaged” bankruptcy.

“But it doesn’t really work when you’ve got a much more difficult situation, where it’s a very challenging industry or when the company needs a lot of restructuring beyond just its balance sheet, such as eliminating or selling off unprofitable lines of business,” Mr. Collins said.

Reorganizing a company under those circumstances requires an investment in the company’s future, but investors now are not optimistic enough to make such bets, he continued. “People are hesitant to do a lot of significant transactions.”

This has turned the former do-over procedure into a formality speedbump:

“True reorganizations, in the spirit of the bankruptcy code, are becoming extremely rare,” said Sandra E. Mayerson, a lawyer at Holland & Knight in New York. Instead, she said, many companies file for bankruptcy protection and proceed immediately to liquidation…

Even if creditors give a struggling company more rope, they are not patient about it, and tight repayment deadlines leave scant time to turn a big company around. Shutting down a company can be done more quickly.

“A number of years ago, we had fairly long bankruptcies, where companies could come out as stand-alone enterprises,” said Joe Bondi, a managing director of Alvarez & Marsal, a turnaround and restructuring firm. Now, no one wants to hold the debt of companies whose prospects are in doubt.

So Chapter 11 is becoming de facto Chapter 7. So much for bankruptcy ever re-acquiring a cheerful pose.