system
A chat on subreddit /r/wallstreetbets
human
What I described is the typical situation in a Chapter 11 bankruptcy.  The company issues new shares because they intend to restructure their debt and continue in business.  Some creditors have to accept the new shares as settlement of the bonds they hold because the company, in conjunction with the courts, is looking to reduce its debt load to a more manageable level through the bankruptcy proceeding.

If the company is going out of business: Chapter 7 or 13, then there's no point in issuing new shares.  In that case lower seniority debt and stock may simply go uncompensated if assets can't cover them.
gpt
Yes, it's so very rare that equity recovers anything from a Chapter 11 process. In virtually every major bankruptcy, the debtor companies are deeply insolvent and the existing equity gets fully wiped. 

It's usually only where there was some unexpected post-filing windfall to the estate that equityholders end up with an economic interest going into a plan confirmation or a 363 sale hearing. But those are serious outliers.