As with consumer bankruptcy, business-related bankruptcy is governed by federal law. The debtor, in this case a corporation, either files Chapter 11 or Chapter 7 bankruptcy, depending on its financial standing and prospects for recovery. Under Chapter 11, a company will reorganize its business as it attempts to offload debt and return to profitability. Under Chapter 7, a company goes out of business entirely and sells off (or "liquidates") its remaining assets, using the proceeds to pay back debts to investors as well as creditors. In this case, stockholders lose all value because stockholders own a piece of the company and the company is eliminated.
