What happens to investors’ investments when companies go bankrupt? Well, it depends on the bankruptcy chapter filed, whether Chapter 11 reorganization or Chapter 7 liquidation. Investment recovery may be an option.
In Chapter 11, a company attempts to get rid of its debt in order to continue operating, even trading publicly during the proceedings, and turn the company around to profitability; whereas in a Chapter 7, the company goes out of business and attempts to sell assets to repay debts to creditors and investors.
Secured creditors, those with collateral backing their loans or investments, are given priority repayment status. In other words, they get paid back before unsecured creditors such as credit cards. Bondholders usually recover their principal investment with interest but stockholders, as owners of a piece of the company, may or may not recover their investments.