{"id":286921,"date":"2016-04-04T10:41:50","date_gmt":"2016-04-04T15:41:50","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/bankruptcy\/chapter-13\/corporate-bankruptcy-what-every-investor-should-know.html"},"modified":"2025-08-23T14:27:55","modified_gmt":"2025-08-23T19:27:55","slug":"corporate-bankruptcy-what-every-investor-should-know","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/bankruptcy\/chapter-13\/corporate-bankruptcy-what-every-investor-should-know.html","title":{"rendered":"Corporate Bankruptcy: What Every Investor Should Know"},"content":{"rendered":"\n
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Corporate Bankruptcy: What Every Investor Should Know<\/h1>\n\n
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\n By Christie Nicholson, J.D.<\/a> | Legally reviewed by Jordan Walker, J.D.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Every investor should know that corporate bankruptcy prioritizes creditors over shareholders. This can wipe\u00a0out or severely dilute\u00a0common stock.\u00a0Bondholders, especially secured ones, may recover more through Chapter 11 reorganizations or Chapter 7 liquidations. In Chapter 11, companies can keep operating and may cancel or exchange old shares for fewer, lower-valued new ones.\u00a0In Chapter 7, assets are liquidated and shareholders typically receive nothing.<\/i><\/p>\n\n <\/div>\n\n\n\n

Just like individual debtors, corporations sometimes find themselves in financial trouble and have no option but to file for bankruptcy. Most corporate bankruptcy cases are filed under\u00a0Chapter 11<\/a>, which provides the company with an opportunity to reorganize and restructure its debt. Other businesses may\u00a0opt for a Chapter 7 \u201cliquidation” bankruptcy.<\/p>\n

While bankruptcy may be the best option for a corporation, it will have a significant impact on the company’s investors. Not only does bankruptcy disrupt business operations during\u00a0bankruptcy proceedings<\/a>, but it can also have a serious impact on the company’s future and credit rating.<\/p>\n

This article explains\u00a0what happens to a corporation during\u00a0Chapter 11 restructuring or a\u00a0Chapter 7 bankruptcy case<\/a>. It also explores\u00a0how a bankrupt company can affect the company’s assets and its investors.<\/p>\n

If you own or operate a corporation and are considering bankruptcy,\u00a0it goes without saying that you should consult\u00a0a\u00a0bankruptcy law attorney<\/a>. They’ll review your financial situation and advise you as to whether bankruptcy is the best option. A skilled lawyer will also\u00a0explain the bankruptcy process and guide you throughout the bankruptcy proceedings.<\/p>\n

How\u00a0a Corporate Bankruptcy Works<\/h2>\n

As with consumer bankruptcy, federal law governs corporate bankruptcy. The corporation files either a Chapter 11 or\u00a0Chapter 7 bankruptcy<\/a>. The chapter they choose depends on the company’s financial situation and prospects for recovery.<\/p>\n

Under\u00a0Chapter 11<\/a>, a company will attempt to:<\/p>\n