: Investors with hybrid equity-debt holdings.
The type of filing determines the fate of the company and its shares:
Buying stock in companies that have filed for bankruptcy is a high-risk strategy that often results in a total loss of investment. While there is no federal law prohibiting the trading of these securities, the legal priority of claims usually leaves common shareholders with little to nothing. buying stock in bankrupt companies
: Some brokerages, such as Fidelity or Public , may restrict trading in these stocks or require special permissions due to volatility and low liquidity. The "Waterfall" of Payouts
: Usually receive nothing unless all higher-tier creditors are paid in full. Chapter 7 vs. Chapter 11 : Investors with hybrid equity-debt holdings
Bankruptcy courts follow an "absolute priority rule" when distributing remaining assets. Common stockholders are at the bottom of this hierarchy: : Banks or lenders with collateral. Unsecured Creditors : Bondholders, suppliers, and employees.
: Delisted shares migrate to over-the-counter (OTC) markets, such as the OTC Bulletin Board or Pink Sheets. : Some brokerages, such as Fidelity or Public
When a company files for bankruptcy, its shares typically continue to trade, but the environment changes significantly: