Why do shareholders of a company with positive shareholder equity still receive nothing in the event of bankruptcy?

Hello everyone,

I’m currently looking at the situation with Spirit Airlines. I’m not a shareholder, but I was interested in the fact that they report about $807m in shareholder equity.

Spirit now claim that the bonds due in 2025 and 2026 are a problem, and they must renegotiate, likely resulting in a wipeout of shareholders and Chapter 11.

My question is, if the company has equity value remaining, why do the shareholders end up with nothing? Is it because the value of those assets would likely not stack up to the value of liabilities when liquidated/sold off (although I would assume depreciation accounts for that)? Or is it because the costs incurred during the bankruptcy process would exceed the shareholder equity in the company?

I can’t imagine the process would cost them $807m…