Bankruptcy for a Public Company
A company may decide to declare bankruptcy when it suffers from crippling debt. Federal bankruptcy laws govern how the assets and business of a company will be used to clear its debts.
Concept at a glance
Definition and explanation
A company may decide to declare bankruptcy when it suffers from crippling debt. Federal bankruptcy laws govern how the assets and business of a company will be used to clear its debts. [1]
There are two types of bankruptcy available to companies (Chapter 7 and Chapter 11), but regardless of the type of bankruptcy a company files under, any common stock in a bankrupt company is likely to be worthless. That is because the common stock (that is, “equity”) is the last in line to receive what’s available to be distributed in a bankruptcy proceeding. [1]
Creditors, including bondholders, suppliers and employees, all come before holders of the company’s common stock. And, even if a company successfully reorganizes, its plan of reorganization often cancels the existing shares of common stock. [1]
Source-supported connections
Frequently asked questions
What does Bankruptcy for a Public Company mean in the cited reference?
A company may decide to declare bankruptcy when it suffers from crippling debt. Federal bankruptcy laws govern how the assets and business of a company will be used to clear its debts. [1]
Bankruptcy for a Public Company connection map
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Sources and review dates
Reviewed 23 October 2026. Historical dates and award-time affiliations retain their original context. A review date is not an event date. Background sources are identified separately from official records.