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Filing corporate bankruptcy provides a chance for a company to either close down its operations and divides whatever assets it has left to its creditors. This is under chapter 7 bankruptcy which protects a company from its creditors by clearing it of its debt responsibilities.

Filing corporate bankruptcy using chapter 11 is another bankruptcy option a company may take. In this case it still operations still remains under the company. However, the company is required to submit a repayment plan to be approved by its creditors. The company may find it hard to convince its creditors on the potential success of the repayment plan but the company just has to try its best to work every thing out with its creditors. Furthermore, the court oversees the company’s day to day operations.

What happens to stockholders and bondholders when a company files for corporate bankruptcy? By law, when a company declares bankruptcy, those that took less risks are paid first. These are the companies which the debtor (or company) owes secured debts from. Bondholders on the other hand have a greater chance of being paid than stockholders. A company agrees to pay its bondholders since bonds are a representation of the debt of the company. Stockholders who also own the company are the last to be paid as per bankruptcy law.