when supervised by a court during bankruptcy proceedings a reorganization focuses on restructuring a company s finances the company is temporarily protected from claims by creditors for full repayment of outstanding debts 
once the bankruptcy court approves the reorganization plan the company will restructure its finances operations management and whatever else is deemed necessary to revive it it also will begin paying its creditors according to a revised schedule u s bankruptcy law gives public companies the option of reorganizing rather than liquidating through the terms of chapter 11 bankruptcy firms can renegotiate their debts to try to get better terms the business continues operating and works toward repaying its debts the process is complex and expensive firms that have no hope of reorganization go through chapter 7 bankruptcy also called liquidation bankruptcy a court supervised reorganization is typically bad for shareholders and creditors who may lose part or all of their investments even if the company emerges successfully from the reorganization it may issue new shares which will wipe out the previous shareholders if the reorganization is unsuccessful the company will liquidate and sell off any remaining assets shareholders are last in line to receive any proceeds and receive nothing unless money is left over after repaying creditors senior lenders bondholders and preferred stock shareholders in full a reorganization by a company that is in trouble but not yet in bankruptcy is more likely to be good news for shareholders its focus is to improve company performance not stave off creditors it often follows the entrance of a new ceo in some cases the second type of reorganization is a precursor to the first if the company s attempt at reorganizing through something like a merger is unsuccessful it might next try to reorganize through chapter 11 bankruptcy 