What Tha Finance?!: Bankruptcy Stock
And I’m back with another WTF for you! During this time, we have been seeing quite a few companies filing bankruptcy like it’s popular! This country is really going through a new reset for all things, especially retail! So a good bit of brands are publicly traded in the markets. But when one of them files bankruptcy, what happens?
I had someone reach out to me when the news with JCPenny broke about what did the stock ticker mean with the “Q” at the end. I summed it up with this picture:
But when it comes to bankruptcy stock, there are some other things to keep in mind while determining if you want to keep that said fund within your hand.
While the company can be going through the bankruptcy process, The New York Stock Exchange (NYSE) could delist the stock until it is confirmed what Chapter of bankruptcy the company would be filing. For some, it will be pulled completely and the others will find themselves with a Q at the end. The value of the stock could go down tremendously. This is the other side of investing that people rarely talk about.
More tea:
Chapter 7 is the worst case situation for common stockholders …You. Why? The value of you stocks are zapped. This chapter means that company is liquidating selling assets to ‘pay them people’ = creditors.
Chapter 11 is the better scenario for stockholders of that said company. You could — hold and hope or run to the light Carol Anne! It rarely happens that companies can pull a Hail Mary after snatching a Chapter 11. Most of the times that company can’t restructure strong enough.. especially during climates like these.
What are typical assets that are liquidated and paid out? Here is the order that they fall*:
Unpaid wages (to employees)
Taxes
Debt (Bonds, Mortgages, etc)
Preferred Stockholders
*Common Stockholders (You)
*Common stockholders are usually the last in line when ti comes to receive anything in situations like this!
During my FB Lives and content, I always tell people to research before they reach for their wallet to purchase a stock. This also goes into knowing when to hold them and knowing when to fold them. If you find one of your holdings (stocks in your portfolio) falling from grace, you have to determine if you have a book or not (keep it or throw it).
Companies can come back with new ownership, management. During this stage, their stock will be only access under the OTC market. OTC is short for Over-The-Counter (OTCMKTS) ; which means they aren’t listed the same way as the traditional retail stock you can snatch on your investment app. You have to go via a brokerage or broker-dealer network due to still having that “Bankruptcy” tag on their sleeve.
To learn more about WTF: What Tha Finance, check out the introduction post!
Stay Focused, Stay Funded.