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What Happens to Investments During a Corporate Bankruptcy

Bankruptcy is a very complicated area of law for any entity, but especially for a corporation.  A corporation functions with officers, board of directors, shareholders, and other investors.  Allocating debt and assets will become a complex task.  What happens to your investments will depend on whether the corporation is dissolving, or just restructuring.  Some common investments include: stocks, bonds, and investment real estate.

STOCKS AND BONDS

Stocks and bonds will usually continue trading, but, unfortunately, at a very low cost (frequently referred to as “junk” stocks/bonds).  As to bond holders, they typically will no longer receive interest or principle payments.  In term of stockholders, they will likely no longer receive issuance of any dividends.  However, both bond and stock holders would receive new stocks and bonds in a restructured company, though they probably would not hold as much value as the stocks and bonds held in the originally formed company.

A practical investor does realize that there is always something at stake when starting or investing in a new company.  All new companies have the potential to succeed, or fail.  The reality is that there is always exists a continuous risk of loss when infusing assets into a company (whether a start-up or a long-time existing company, i.e., Kodak).  Depending on what is available for distribution after liquidating assets and where an investor is ranked on the creditor’s list will determine the amount of return you will receive from an investment.  Obviously, secured creditors are ranked highest on the list.

INVESTMENT REAL ESTATE

Typically under a Chapter 7 bankruptcy filing, an investor will not lose investment property, unless that property is protected by an exemption (which is usually determined by state law).  Investment property is not usually protected under exemption and the property may be surrendered and the debtor will be discharged for the debt.  Under Chapter 13, a business owner may keep the investment property, but must repay a portion of the debt over time.

What happens to investments during a bankruptcy can and will vary depending on the corporation, making it very important to hire talented, and knowledgeable corporate bankruptcy attorneys to properly protect corporate investments.  The DCDM Law Group is highly experienced in corporate bankruptcy proceedings and are immediately available to help protect your corporation’s investments during a corporate bankruptcy.

 

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.