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May 21, 2008 10:35 am US/Pacific

When Companies Go Bankrupt

QUESTION:   What happens to my shares if I own stock in a company that files for bankruptcy?
ANSWER:  In most cases, your shares will become worthless.  The company may re-emerge from bankruptcy and continue doing business, however the old shares are typically discharged with potentially new shares being issued.  In the bankruptcy proceeding, the debt holders will sometimes negotiate a restructuring of their debt in exchange for new ownership in the new company. 

There exceptions to this, most recently in CA when PG&E went through bankruptcy some years back.  Their shareholders however, saw their ownership stay intact after the bankruptcy, and performed well in subsequent years.  This is however rare!
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Money Matters is provided by:

David Schauer, CFA, MSFA, CFP®
Financial Planner
Hanson McClain
E-mail questions to moneymatters@kovr.com

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