No worries. It’s not an entirely un-complex topic (and that’s not an accident).
But yes, Chapter 11 or Chapter 7 are the most common.
You should definitely check out those resources, but the quick answer to your question is, yes, the stock market probably would fall…but if left alone (i.e. not interferred with), and everything went according to the laws that are in place, then it wouldn’t be nearly as harmful as otherwise. If the laws are actually followed and the contracts are honored as they are supposed to be—as opposed to violating the bankruptcy laws and bailing out unsecured creditors while stiffing the secured ones—(like what happened in the auto bailout when Obama paid off the unions and left the bond holders high and dry in direct violation of bankruptcy laws), then there is a predictability and confidence in the market. This is the most important aspect of getting out of a downturn situation.
If you go back through past recessions and even this one, the number one thing that is holding businessmen back is a lack of predictability…they have no idea what the government is going to do next…raising taxes, imposing costly mandates and regulations, outlawing types of transactions or ways of doing business…such that making any real business decisions could prove detrimental to the entire enterprise. Thus, business and entreprenuership is retarded, as business people hold off and wait to see what happens.
In regard to the banking system, see the resources here. (In particular, the Federal Reserve section).
Fractional & full reserve banking & the Federal Reserve
Again, I also recommend the links in the opening paragraph here. Overdose in particular might be a good way to get up to speed with a nice overview.