What will happen to general motors stock if it declares bankruptcy? I assume the stock would be worthless, but is that necessarily true?
You assume correctly.
Supposing it were a Chapter 7, the assets of the GM would be liquidated and creditors would be paid according to whether they are secured or unsecured lenders and their priority (the rules are kind of technical, and not really relevant to the kernel of your question). Equity owners of the company have the lowest priority of all; if any money remained after paying all creditors (which never happens), they would be paid proportionally.
In Chapter 11, there are some modifications to this. However, the absolute priority rule requires that if any senior creditor class dissents from the proposed plan of reorganization, that creditor class either must receive the full value of their claims or that no more junior class than they may take/retain at all. Thus the treatment of equity shareholders in Chapter 11 ultimately depends on the plan. If approved, they may get shares in the reorganized corporation at some fraction of the number of shares they currently hold. If the plan is approved through cramdown, then they will retain nothing following the bankruptcy.
However, if you hold on to the certificates long enough, they may be of interest to collectors.
First two answers are correct. Just wanted to add that there may be different classes of stock (no idea if this is true in the case of GM but I suspect it is). Specifically, there may be several different classes of preferred stock. If there is money left over, the preferred stockholders get paid before the common stockholders.
To expand on the point made by Kimmy_Gibbler:
There are two types of bankruptcy proceedings for a corporation, Chapter 7 and Chapter 11. In a chapter 7 proceeding, the assets of the corporation are liquidated and the proceeds are used to pay the creditors. Much of the bankruptcy code consists of rules for determining how you line up the creditors and who gets paid what. The common stockholders are the LAST in line, so in practical terms it is extremely unlikely that any money will be left over to pay them.
Sometimes they are converted into some nominal amount of new shares, e.g. every thousand old shares becomes one new share.
Yeah but who the hell has actual certificates anymore? I doubt ebayers of the future would be interested in a copy of my Fidelity statement.
You can order your own certificates of stock if you want, though I don’t think people do. What I’d like to know is since I do actually own some stock in GM if I can order mine today. At least I’d have something.