Reply #10: Chapter 11 of the Bankruptcy code covers Corporate Reorganizations [View All]

[happyslug]

Chapter 7 is what most people file, but it is reserved for private individuals. Chapter 11 is where debts can be recognized (and if to much the corporation can be dissolved and assets sold). The problem with Chapter 11 is existing stock holder will get nothing, and that includes the Executives with their stock options (The Stock Options become worthless for the stocks become worthless). Existing debtors of the Corporation generally become the new stock holders, as partial payment of their debts.

Given that much of the top management of the GM hold stock and stock options in GM, any Chapter 11 Bankruptcy will make those stocks and options worthless, thus why GM wants the bailout NOW, for come January 1st, by all accounts, GM runs out of Cash to pay debts. That is the point where GM has to file Chapter 11, something GM Management wants to avoid (The deadline is whenever GM runs out of Cash NOT 1/1/2009, but all indications shows 1/1/2009 is when GM runs out of Cash).