What To Expect When A Company You Invest In Files For Bankruptcy

When you choose to own stock in a company, there is a risk that the company might choose to file for bankruptcy. If this occurs, you might wonder what will happen to your stocks. Because your stocks in this company might end up being useless, you will want to discuss this with an investment adviser as soon as possible.

Bankruptcy Is Not Always the End of a Business

While some businesses close their doors after bankruptcy, other businesses use bankruptcy as a way to stay in business. However, if you own stocks in a company that files for bankruptcy and the company manages to make a comeback, you still won't see the value of your stock rise. 

With Chapter 11, a company believes that they are not able to turn a profit due to the amount of debt they are holding but they may be able to become profitable if they renegotiate their debts. However, in many cases, the company will not be able to file for bankruptcy. Still, through the process of bankruptcy, you will lose the value of your shares because they will be used to pay down debts.

You're Responsible for Company Debts

By investing in a company, you are a partial owner. If the company was able to leave substantial value to its investors after the bankruptcy, there would have been no point in filing for bankruptcy in the first place because they would have been able to pay off their debts.

Fortunately, you may still be able to sell your shares while the company is filing for bankruptcy. Your shares might be delisted from the NASDAQ but you will still be able to sell them in over-the-counter markets. You will want to work closely with an investment advisor to determine the best steps to take so you can minimize your losses.

Your Portfolio

To minimize your exposure to risk, you will want to speak with a retirement planning advisor about how you can diversify your portfolio to take into account companies that might go bankrupt. You'll want a portfolio that will allow you to accomplish your financial goals.

However, you will always what to receive advice from a licensed and qualified financial planner. Those who are credible will not give advice anyway if they are not financial planners because they will not want to be held liable for giving you advice that would be detrimental to your finances.

To learn more, contact an investment planning company.