Here are the 2 types of corporate bankruptcy under U.S. law.

• Chapter 11 bankruptcy, allows a company to continue to operate as it sheds debts and contracts it can not afford.
• Chapter 7 bankruptcy, the company goes out of business fairly rapidly as its assets are sold off to try to satisfy its creditors.

[ Via CNN Money FAQ ]

Collapse of one of the world’s largest investment bank, Lehman Brothers has triggered large stock market falls around the globe. Wall Street has seen its worst day since 2001 amid fears about the stability of the financial system.

158-year-old bank Lehman Brothers, announced it was filing for Chapter 11 bankruptcy in the United States.

Lehman suffered billions of dollars worth of losses in the US mortgage markets and was unable to find an investment partner to rescue.

According to FT report

• The wider index closed down 4.7 per cent at 1,192.96 points
• Dow Jones Industrial Average was down 4.4 per cent lower at 10,917.51 points
• Nasdaq Composite index fell 3.6 per cent to 2,179.91 points

Majority of the Lehman Brothers’s 26,000 staff around the world are expected to lose their jobs.

Five different kinds of bankruptcy cases cases are divided into two different types of bankruptcy cases:

1. Liquidation - Chapter 7
2. Reorganization - Chapters 9, 11, 12 and 13

According to investopedia

• Chapter 7 bankruptcy is called liquidation bankruptcy.
• Chapter 11 bankruptcy is called rehabilitation bankruptcy.

When a company is successful in Chapter 11 bankruptcy, it will typically be expected to continue operating in an efficient manner with its newly structured debt. If it is not successful, then it will file for chapter 7 and liquidate .  ( Shareholders will see little (if any) return on their investments)

[ What are the differences between chapter 7 and chapter 11 bankruptcy? ]