Chapter 7 Bankruptcy: Scenario: If the company fi
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Posted On: 09/08/2024 9:56:34 AM
Chapter 7 Bankruptcy:
Scenario: If the company files for Chapter 7 bankruptcy, it’s shutting down for good.
Stock Impact:
Defunct: The stock becomes defunct.
Asset Distribution: Common shareholders may, at best, receive a portion of their value back when the company’s assets are distributed.
Rare Recovery: Common shareholders rarely receive anything at all.
Liquidation Order:
Order of Distribution: Bankruptcy law determines the order of asset distribution.
Common vs. Preferred Shares: The above applies to both common and preferred shares, but preferred shares have a higher priority for repayment in case of liquidation.
In summary, when a company goes bankrupt, common stockholders are usually last in line for payment, and their shares often become worthless. It’s essential for investors to understand the risks associated with holding stock in distressed companies during bankruptcy proceedings.
Scenario: If the company files for Chapter 7 bankruptcy, it’s shutting down for good.
Stock Impact:
Defunct: The stock becomes defunct.
Asset Distribution: Common shareholders may, at best, receive a portion of their value back when the company’s assets are distributed.
Rare Recovery: Common shareholders rarely receive anything at all.
Liquidation Order:
Order of Distribution: Bankruptcy law determines the order of asset distribution.
Common vs. Preferred Shares: The above applies to both common and preferred shares, but preferred shares have a higher priority for repayment in case of liquidation.
In summary, when a company goes bankrupt, common stockholders are usually last in line for payment, and their shares often become worthless. It’s essential for investors to understand the risks associated with holding stock in distressed companies during bankruptcy proceedings.
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