Where Does ‘Corporate Bankruptcy’ Leave You?

It is possible for corporations to file for bankruptcy, just as individuals do. Bankruptcy is the legal declaration that are no longer able to pay your debts. Nevertheless, a problem arises when the corporation tends to be a large public company that has given out thousands of shares of stock to different stockholders. If you are one of these stockholders, you might be wondering how this company’s bankruptcy might affect you. Don’t worry—when you are a stockholder, although you own a tiny piece of the company, you personally won’t be financially responsible for the company who declares bankruptcy. You might lose a lot of money due to the value of the stock dropping to zero, but creditors won’t be banging your door asking for millions, that’s for sure! Nevertheless, as a stockholder, you are responsible to continue to understand how the company is operating throughout the bankruptcy procedure. You do have a small say on how it operates nevertheless.

Companies can decide to file either chapter 11 or chapter 7 bankruptcy. Most companies choose to file chapter 11. This suggests that, although the company cannot currently pay off its debts, it is hoping that with some assistance and with reorganization the company will be able to be profitable again. The company’s stock can even continue trading whilst this is taking place. At times, a trustee and creditors will be able to handle the reorganization, and sometimes the new owners will have to handle it. It will all depend on the specific situation. In this case, when the reorganization plan is complete, you, as a stockholder might get a vote. You should read everything sent to you very carefully, and if you agree, vote in favor. If you do not agree, you should vote against. Your voice does make a difference, because if enough people vote against, the company cannot carry through with the plan.

Nevertheless, in some cases, this is not how companies usually choose to proceed. If the company is deeply in debt and does not see any chance for coming back from this debt, even after a reorganization, the company will declare a chapter 7 bankruptcy and decide to liquidate. When a company chooses to liquidate, the trustee will sell all of the assets to pay off creditors. For, secured debts are repaid, and then the unsecured debts are repaid. If there’s any money left, it will be split amongst the stockholders, but this is usually not the case. The bottom line is that bankruptcy is always bad for everyone. It is important to follow the things happening in your company so that you are aware of things like this that might be on the horizon. The stock market is always a gamble, and sometimes it does not, in each case, pay off.

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