What happens to stock in a company after the company declares bankruptcy?
For instance UAL was selling for a dollar a share. If it declares bankruptcy does it automatically become worthless. If so,has a company done this and the stock gone up?
Does it matter if they do a reorganization bankruptcy as opposed to full bankruptcy?
I don’t know what will ultimately happen with Enron, but they declared bankruptcy months ago and their stock traded almost 6 and a half million shares today at about a dime per. Worldcom is a little under a quarter.
I would think reorganization would generally be better for stockholders, as it leaves some chance of the company turning itself around.
Odd this topic should come up today. A cow-orker asked me if I thought he should invest in Worldcom stock. He figured at 29¢ per share, it was a bargain. I told that I wouldn’t buy it, but he could do so if he wanted to throw away good money. I just don’t think it’ll ever get back to anywhere it’s old level.
Holders of “common” stock get paid last - after employees, secured loans, holders of “preferred” stock, the orphans and widows, and just about everyone else in sight.
This is why Enron, et al are so cheap - nobody expects there to be any money left to pay shareholders.
It’s possible a company’s stock could go up after bankruptcy.
IIRC, TWA’s stock went up quite a bit after their first, or was it the second–if you file three times in about seven years, it’s hard to keep track.
There are two ways you can make money off of stock in a bankrupt firm: (1) The firm can be liquidated, and, per happyheathen, there just might be money left over after all of the creditors, lawyers, and the government are paid; or (2) The firm can be reorganized, under a plan approved by creditors and the bankruptcy judge, which provides crumbs (typically heavily diluted stock in the reorganized firm) for the original share holders.