Where chapter-11 tries to keep a business alive, Chapter 7 admits it is worth more in pieces. A trustee replaces management, assets are sold, and proceeds flow down the priority ladder: secured creditors, then administrative and priority claims, then unsecured creditors, then preferred-stock, then common.
Because liquidation proceeds are almost always well short of debts, the practical assumption for common stock is a total loss. A Chapter 11 case can also convert to Chapter 7 when reorganization fails, which is the point at which any remaining option value in the shares disappears.
Example: liquidation raises $380M. Fees and secured claims take $310M, unsecured claims of $900M split the remaining $70M at about 7.8 cents, and both preferred and common receive zero.
Related: chapter-11, absolute-priority-rule, preferred-stock, common-stock, delisting