What is Chapter 11 bankruptcy?

The US bankruptcy code 11 is usually the path taken by organizations, when faced with crippling debt. Code 11 gives the organization ample time to restructure its assets and attempt a profitable start.

Though considered to be one of the most complicated of all bankruptcy cases, it is opted after extensive deliberation by the management.

Federal laws determine the laws of payment and further division of assets. Secured creditors are the first to get back their money. Bond holders are the next and shareholders of the company are the last to receive any kind of compensation. Though they make the maximum when the company is doing good business, they get the least preference in such situations. The owners may not get anything at all if the secured and the unsecured creditors' claims are not fulfilled. Bondholders stand a better chance of recovering their debt because of the commitment by the company to pay back the principal.

Even after the company has filed for bankruptcy, the company's securities may continue to trade even after the company has filed for bankruptcy under Chapter 11. The company's securities may continue to trade on NASDAQ and NYSE.

In most of the cases, the company's reorganization involves liquidating the equity shares and the management moving into the hands of creditors and bondholders; it is extremely risky for investors to trade in these stocks.

Companies follow this route mainly to have control over the reorganization process. In worst cases, the only option is to liquidate.