United States bankruptcy laws govern how corporations and other businesses file bankruptcy. A bankrupt company can choose to either reorganize it’s debts using chapter 11 bankruptcy or “go out of business” and file for chapter 7 bankruptcy.
If the company chooses to file chapter 11 bankruptcy, management continues to run the company but all financial decisions must be approved by a bankruptcy court.
Stockholders normally assume the greatest risk in corporate bankruptcy because they own part of the company. If the company succeeds the stockholders make money. If the company fails, the stockholders lose money.
For more information on corporate bankruptcy, visit the SEC’s website.
