The leaders of a failing company have several options for dealing with the situation. They can go into damage control mode and attempt to restructure. This usually occurs during a Chapter 11 bankruptcy. The company can also shut down completely and liquidate its assets via Chapter 7. This is bad news for stocks.
Bankruptcy is bad news for shareholders
When a company goes into bankruptcy, shareholders are often left holding the bag. They are usually the last ones to be paid off if a company should go out of business. This is the risk every shareholder must take.
In many cases, there is no money left for the company to pay. This means your shares are worthless and you will get nothing. Even if a company reorganizes, the value of stocks can plummet to next to zero. It may get so bad that the company itself is unlisted from the stock exchange.
However, if the company has filed for a Chapter 11 bankruptcy, there is a chance that it could recover. You may choose to hold on to your shares during this period of readjustment. You may actually have no choice since the value of the shares you hold will be so minimal that it may be very difficult to sell them.
A bankrupt company can cancel your stocks
A company that is in the throes of a Chapter 7 bankruptcy may choose to cancel all of its stock. This means that all of the investments made by shareholders are now worthless.
If the company declared Chapter 11 bankruptcy, there is a chance that it could offer its old stock over the counter. You can choose to buy back this old stock. However, this stock will be quite a bit more volatile than the new.