Many questions crop up as soon as a company decides to file a corporate bankruptcy. Immediately following this, people as investors would want to know what is going to happen to the company, who would care for the investors’ interests, and to top it all, they would want to know whether the old securities would be of any value in the near future, or the stockpile would be transformed into waste paper till the time the company is revived.

The company that runs out of trade or tries to pull itself through the crippling liability have to resort to new bankruptcy laws governed by US federal government. An insolvent company or the “debtor” concern can make use of either Chapter 11 or chapter 7 contained in the Bankruptcy Code.

As per Chapter 11, the insolvent company is granted the permission to restructure its commercial activities and make an attempt to emerge as a profit-making corporation. The concern, in this case, operates normally on a routine basis despite the fact that every significant business decision has to be decided upon duly by a court giving due consideration to the new bankruptcy law.

As against this, the company will have to stop all its operation and close all its functioning under Chapter 7. In case of chapter 7 bankruptcy, the task of liquidating the company’s existing assets is entrusted by to a “trustee”.

While making a payment, the first priority is given to the investors, owing to the high risk they involve. Legally, the bondholders have an edge over and above the stockholders as bonds represent the debt of the concern. The corporation agrees not just to pay bondholders’ interest but also to return their principal.

The remaining creditors of the corporation are generally secured creditors whose risk factors are low as their credit is normally secured by collateral. These people required to be paid first when the company set in for bankruptcy filing.