Old Copper Co. Inc. (f/k/a CPPRQ/JCPNQ JC Penney)

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Bankruptcy

STOCK TRADING  STOCK TRADING STRATEGY & EDUCATION

What Happens to the Stock of a Company That Goes Bankrupt?

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By MATT LEE

 Updated Apr 17, 2020

When a publicly-listed company declares bankruptcy and goes into liquidation, the company's shareholders may be entitled to a portion of the assets, depending on what type of shares they hold. However, the stock itself is worthless, and cannot be sold.

The owners of common stock shares are last in line for a share of the firm's liquidated assets, so the hope is a faint one.

KEY TAKEAWAYS

If a company declares Chapter 11 bankruptcy, hang on. It is asking for a chance to survive and recover. Your shares may recover with it.

If it declares Chapter 7, the company is dead and so are your shares. You're last in line for repayment of your investment.

Owners of common stock often get nothing when a company enters liquidation.

What Bankruptcy Means

Two types of bankruptcy are recognized by U.S. law, and the differences are important to shareholders. In either case, the company files for bankruptcy because it is in such deep financial trouble that it is unable to pay its immediate obligations. Business as usual is impossible because it can no longer even pay its suppliers. It has only two options:

Chapter 11 bankruptcy signals that the company is asking the court to protect it from its creditors until it files a detailed plan for how it intends to recover financially. If the court accepts the plan, the company may renegotiate its debts, drastically cut its costs, and resume doing business. Over time, it may thrive and emerge from bankruptcy (or not).

Chapter 7 bankruptcy means that the company has shut its doors for good. Its assets will be sold and the entire proceeds will be distributed to its creditors in a strict order of precedence.

https://www.investopedia.com/ask/answers/06/bankruptpublicfirm.asp