Similar to an LLC, when corporations liquidate under chapter 7 of the U.S. bankruptcy law, it includes only the business assets. The owner is totally exempt from personal liability in regards to any corporate debt, excluding the loss of value of any shares. Creditors are repaid from the proceeds of liquidation. Before equity receives anything, debts must be paid in full.
Chapter 11 of the U.S. bankruptcy law states that all assets are kept by any organization that reorganizes and continues operation, while most creditors receive partial payment. Investment decisions become less efficient in reorganization because equity over-invests in risky projects
In corporate bankruptcy the goal is to obtain enough repayment to creditors that lenders will continue to lend, at least to other borrowers. Inefficient investment decisions made by equity managers in prioritizing decisions, limit the company