Sometimes, when stocks drop precipitously, they can easily over do it on the downside, as panic-selling ensues. These large declines can provide an attractive entry point for investors. The problem is that the biggest declines in stocks often occur the day that a company files for bankruptcy. Does that mean that bankrupt stocks can be a good buy? No, although some people don't realize that. Before buying that company that just filedChapter 11, know the facts, and find out why any amount of money put in is bound to be lost. (To learn more details about a Chapter 11 filing, refer to An Overview of Corporate Bankruptcy.)
Bankruptcy Code sets forth numerous examples of causes that would support dismissal or conversion. They include:
The Bankruptcy Code also provides an important exception to the conversion process in a chapter 11 case. Per the exception, the court is prohibited from converting a case involving a farmer or charitable institution to a liquidation case under chapter 7 unless the debt or requests the conversion.