If I buy a bankrupt companies stock, what happens if they emerge from bankruptcy.?

Answer 1

This is a high risk investment in which you can lose a bundle. However, you can make a fortune if you pick the correct companies. As a rule never touch any company unless they are in bankruptcy under Chapter 11. This is where they have gone for shelter from creditors and where they plan to reorganize and one day emerge from bankruptcy. Avoid Chapter 7. This is where the company goes that intends to liquidate.

Perhaps the best recent example of where fortunes were made by investing in bankrupt companies were many buildings products companies that had sought bankruptcy protection from major judgments against them for once have used asbestos in their products. These were otherwise going companies but they were technically bankrupt since the judgments when added to their other liabilities exceeded their assets. At the low point many of these were trading for a dollar or two a share as recently as five years ago. Most have now emerged from bankruptcy and several have stocks trading in the $60 range. Perhaps the best has been USG (United States Gypsum), which traded during bankruptcy in September, 2002 for about $4 per share. USG hit $115 per share in March, 2006.

Companies emerging from Chapter 11 do not reissue stock and screw the investors as some posts have falsely claimed. A company in Chapter 7 might sell their assets and, in effect, leave the shareholders in the lurch.

Answer 2

The others are right; what "emeges from bankruptcy" is typically a reorganized company that may operate under the same name, but is actually a different business entity, so your shares will have no value as regards to that company.

Google "scripophily", though; the certificates of some defunct companies are actually collectable!

Answer 3

This actually happened to me. They can re-issue their stock under a different name and you get NOTHING from the previous stock.

Answer 4

Bad investment.