After the initial panic, prices on defaulted corporate bonds usually, but not always, creep up. Some may take the view that there is too much uncertainty and prefer to require the issuer to repay the amounts owed under the bonds, failing which the issuer should be liquidated. Futures and options allow you to put up relatively little money the price of the contract and possibly profit a lot.
During corporate bankruptcies, sometimes a settlement can be reached between borrowers and lenders whereby only a portion of the debt is repaid. Check out the brand new podcast series that makes learning easy — exploring topics as vast as the reference books. Fontinelle, E.