If you are an investor, you may be curious as to what would happen to your interests if a publicly traded corporation bankrupt. As an investor, there are some things that you would do well to keep in mind about corporate bankruptcy. Companies sometimes have to file for a corporate bankruptcy to restructure or to reemerge debt-free. This is somewhat common in the corporate world.

All business bankruptcies are governed by the federal law. The debtor has the ability to file a Chapter 11 or Chapter 7 bankruptcy depending on the goal of the bankruptcy and the prospects for recovery after the bankruptcy is over. Normally, a Chapter 11 bankruptcy is used to help companies reorganize all business and attempt to offload debt and return to making a profit. A Chapter 7 bankruptcy involves a liquidation of assts. This is normally used if the company decides to sell out its remaining assets and use the proceeds to pay back debts to investors and creditors.

In a corporate bankruptcy, the company will always pay back secured creditors first. This is because these creditors have loans that are backed by collateral. This means bondholders are normally able to recover their losses in an investment venture much easier than stockholders are. Bondholders are guaranteed a return on their principal investment plus interest when they invest in the company. Stockholders on the other hand, own a piece of the company. This means that they are not in a secured loan. They may have to go down with the company as well.

A company's stock typically continues trading after a Chapter 11 bankruptcy filing. If the stock fails to meet listing standards, then it will be delisted. When delisted from one of the major stock exchanges, it may still trade on exchanges like Pink Sheets or OTCBB. Chances are that the stock values will drop dramatically after a bankruptcy, as this is often a severe blow to a company's value and reputation.

Even if a company is able to return from bankruptcy, shares of common stock are typically cancelled. Stockholders will not receive dividends while the bankruptcy proceeding is going on. Common stock normally becomes diluted during bankruptcy, but there is a possibility that you will be permitted to exchange old shares for new shares. These new shares may be fewer in number and lower in value. If a company is determined to be insolvent by the court, then stockholders may be left with nothing after the bankruptcy. Investor's rights will normally be explained as a part of the organization plan that is governed by the federal authorities.

You will want to make sure you understand the difference between old stocks and new stocks if you hope to make smart investment decisions in the future. Normally, new stock that was not issued but instead authorized by a company will end with the letter "V" on the ticker symbol. These stocks will trade "when issued" by the company in the future. When the company issues the stock, the "V" will be removed.

With old stocks, there will be a "Q" at the end of the ticker symbol. These older stocks will probably only be exchangeable on the OTCBB or Pink Sheets. Bondholders will not receive any payments on their investment during a corporate bankruptcy, but may be able to exchange bonds for new stocks and bonds in order to preserve their finances. If you invested in a company that is going bankruptcy, your broker may contact you about the issue.

You may also be asked to vote on the reorganization plan for the bankruptcy. If you want more information about how a corporate bankruptcy is going to affect your financial investments, don't hesitate to contact a reliable attorney using our directory. We will set you up with a local professional who can advise you through your situation and help you to understand more about the bankruptcy that you are facing.