What happens to bond holders when a company files for reorganization?

readytoretire answered 11 months ago …

During a chapter 11 bankruptcy, bondholders will stop receiving interest and principal payments, and stockholders will stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds, or a combination of stock and bonds.
Bondholders are above the stockholders in order of payouts, as most stockholders end up with nothing/close to when the company exits bankruptcy. Depending on the companies situation, they may want to convert some of the bonds to stock to eliminate the interest and principle payments.
See http://www.sec.gov/investor/pubs/bankrupt.htm