Corporate Bankruptcies: The Effects on the Investors

The investors get placed between the rock and the hard place when the company he or she has invested has declared bankrupted. But if the company has filed the bankruptcy under the Chapter 11, there’s a fair chance to get paid off.
According to Securities and Exchange Commission, while the company has file under Chapter 11 the bondholders stop receiving interest and principal payments while the stockholders, on the other hand, stop receiving dividends. “If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company.” These new shares may be fewer in number and probably will worth less than it was before. In other words the reorganization plan “…spells out your rights as an investor and what you can expect to receive, if anything, from the company.”

But if the company failed to recover, then the investor has to accept the inevitable. After being fail to recover the company can file under Chapter 7 which put a stop to company’s all operations and making it asset turn it to a way to pay the creditors. In Chapter 7 investors are regarded as the lowest rung of the ladder. So they instead of crying over spilled milk need to accept the situation because while agreeing to invest in the company they accept the risks that are involve with an investment. Bankruptcy is one of such risk.