How Bankruptcy Affects Stocks
A stock may continue trading once a company files for bankruptcy protection, but it may no longer meet the listing requirements of major stock exchanges. In this case, a stock begins trading as an over the counter (OTC) security or in Pink Sheets.
Other People Are Reading
-
Types
-
A company that files for Chapter 11 bankruptcy protection intends to restructure its debt, emerge from bankruptcy and become profitable again. In a Chapter 7 filing, the company's assets are liquidated and the business closes its doors.
Pecking Order
-
Holders of common shares in a bankrupt company typically receive nothing, according to Donald Workman, a partner at Baker Hostetler quoted in a June 2009 story in the Wall Street Journal. Common shareholders are the lowest priority to be repaid, behind bond holders and preferred share holders.
-
Considerations
-
Investors should be cautious about investing in shares of a company that has filed for bankruptcy, even if it appears the company will emerge from bankruptcy. It is a risky gamble and according to the Securities and Exchange Commission, is likely to lead to a financial loss.
Post-Bankruptcy
-
After bankruptcy, a company may have two stock tickers assigned to it simultaneously. The first ticker symbol represents the company in its bankrupt state. It is five letters long and ends in the letter "Q." The second ticker symbol is assigned as part of a court-approved financial reorganization plan and represents newly issued stock.
Giant Bankruptcy
-
General Motors (GM) filed a historic bankruptcy in June 2009, one of the largest filings ever. The automaker made the filing with $172 billion in debt and $82 billion in assets, according to the Wall Street Journal. GM plans on issuing new shares in the latter half of 2010.
-
