Chapter 11 - Business Bankruptcy

Federal bankruptcy laws govern how companies go out of business or recover from overwhelming debt. A bankrupt company may use Chapter 11 to reorganize in an attempt to become profitable again. The investors who take the least risk are paid first. For example, secured creditors take less risk because the credit that they extend is usually backed by collateral, such as a hard asset or other assets of the company. They know they will get paid first if the company declares bankruptcy.

Bondholders have a greater potential for recovering their losses than stockholders do, because bonds represent the debt of the company and the company has agreed to pay bondholders interest and to return their principal. Stockholders own the company, and take greater risk. They could make more money if the company does well, but they could lose money if the company does poorly. The owners are last in line to be repaid if the company fails. Bankruptcy laws determine the order of payment.

More Information on Bankruptcy

Filing Chapter 13 Bankruptcy

Filing Chapter 7 Bankruptcy

Filing Chapter 11 Bankruptcy