Filing bankruptcy is not an automatic thing. Should the company, during the course of the bankruptcy, somehow manage to bounce back and obtain enough capital to remain solvent, the court may dismiss the bankruptcy since the company no longer needs legal protection to restructure its debt or gracefully liquidate its holdings.

In addition to the court finding that a bankruptcy is no longer appropriate, either the debtor or the creditor can petition the court to dismiss a bankruptcy. This is not entirely uncommon, even when a company might have more liabilities than assets, when creditors believe their interests are harmed more by bankruptcy than a less drastic measure. This avoids companies declaring bankruptcy out of convenience rather than necessity. Shareholders are themselves creditors, and so they too could petition the court to dismiss a bankruptcy under such circumstances.

Finally, while companies (mostly) won't enter bankruptcy if they see other options, bankruptcies do not automatically wipe out shareholders, though that is probably the more common outcome. It is possible however to retain your shares, which would usually be exchanged (possibly at a discount) for shares in the newly constituted company post-bankruptcy.

Or... Hertz can organize Chapter 11 bankruptcy, wipe out large portions of its debt, and then bounce back.

Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.

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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.

That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.

But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.

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If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.

Yep, and this is in fact the type of bankruptcy Hertz is pursuing. Re-org, not a chapter 7 liquidation.

But to clarify, not all investors get screwed. (or at least not completely). Stock owners, unless they're of a class with a higher claim than normal common stock, will usually (though not always) lose everything. However, many bondholders will receive some of their money. How much is determined by many factors, including the type of bond and how senior the debt associated with it.