Companies Are Going BANKRUPT… What Happens To Your Stock?!

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So recently we have started to see many companies in the mist of filing for bankruptcy or some have already officially came out and declared they will be filling. With this happening and possibly more joining the club I have had a lot of you ask about what happens to your stock if the company you own does end up filing for bankruptcy. So when I get a lot of the same questions, I feel it is best just to create a video on it.

The 2 main types of corporate bankruptcies are Chapter 11 and Chapter 7.
A Chapter 11 bankruptcy means a company is trying to “reorganize” its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.
A Chapter 7 bankruptcy means the company stops all operations and goes completely out of business. A trustee is appointed to “liquidate” (sell) the company’s assets and the money is used to pay off the debt, which may include debts to creditors and investors.

What It Means to Shareholders:
If it’s a Chapter 11 bankruptcy, common stock shares will be practically worthless at the moment, and the shareholder won’t be able to sell the shares because no one would want them. There is at least a chance that the company will indeed recover and their shares will regain some of their value.

If it’s a Chapter 7 bankruptcy, the stock is defunct. The common shareholders may, at best, get a portion of their value back when the assets are distributed. They rarely get anything at all.
The usual order of debt repayment begins with any government taxes that are owed. Next in line are financial institutions that extended loans, other creditors such as suppliers and utility companies, bondholders, preferred shareholders, and, last of all, common shareholders.

HOW TO PREVENT THIS?
Unless you have the biggest balls in the world and are looking to invest in companies about to hit bankruptcy or currently in a chapter 11… Then here are some things you can look at to make sure that company is financially healthy and in a good position for you to invest your hard earned money.

Current Ratio: Total Current Assets/Total Current Liabilities. These are usually defined as assets that are cash or will be turned into cash in a year or less, and liabilities that will be paid in a year or less. A ratio under 1 indicates that the company’s debts due in a year or less are greater than its assets. The higher the number the better. Shows how many times the assets can pay for the liabilities.
Debt to Equity Ratio (D/E): The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its shareholder equity. It means a decreased probability of bankruptcy in the event of an economic downturn. A company with a higher ratio than its industry average, therefore, may have difficulty securing additional funding from either source. The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.
Book Value: Total Assets – Total Liabilities.
1. It serves as the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.
2. When compared to the company’s market value, book value can indicate whether a stock is under- or overpriced. (p/b ratio I have talked about in other videos)

Thanks for watching

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DISCLOSURE: Some of the links on this page are affiliate links, meaning, at no additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe.

I am not a financial advisor. The ideas presented in this video are personal opinions and for entertainment purposes only.

Outro Music: Vexento – With You
Cited Sources: https://www.investopedia.com/ask/answers/06/bankruptpublicfirm.asp, https://www.sec.gov/reportspubs/investor-publications/investorpubsbankrupthtm.html

What Happens to Secured Debt in Chapter 11, Companies Are Going BANKRUPT… What Happens To Your Stock?!.

4 Suggestions On Financial Obligation And Credit

Securing a home equity loan to pay off your credit cards implies creating a 2nd home mortgage on your house. Never let the unpaid loan balance exceed the original loan quantity. When you repay the loan you get the rings back.

Companies Are Going BANKRUPT… What Happens To Your Stock?!, Watch more explained videos relevant with What Happens to Secured Debt in Chapter 11.

7 Simple To Follow Actions To Paying Off Debt

Any such debt offered to you without an undying possession is called unsecured debt. When dealing with lenders, the best thing to do is have an expert in your corner.

There are two types of debt, and some very efficient methods to remove them. That’s what this article has to do with: what protected and unsecured debts are, what insolvency is, and how to submit to efficiently release all your major financial obligations. This guide defines essential terms in order to make the procedure simpler.

UnSecured Debt has no tangible item on the line as security, so it normally comes with a greater interest rate. Personal loans and credit cards are the most common kinds of unsecured financial obligation. Student loans are a little challenging. It appears as though it needs to be categorized as unsecured debt, because the bank can not reclaim your education and there is no security; however, stringent laws apply to student loan financial obligation. For instance, it is not dischargeable in bankruptcy, so trainee loans must be thought about Secured Debt.

Make your call once you have all your information put together. Know what you are going to request before you position the call. Be short as to why you would like a better rate, but be to the point. Remind them what other business are providing and that you are believing of moving your company. Inquire if they have any other rate they might offer to keep you there.

When it comes to your objectives in life, make resign Debt Free priority one. Lots of professionals will tell you to list your financial obligations by interest rate with the highest rates of interest at the top. This does not work for most. You need to list all financial obligations from tiniest to biggest and pay them in that order. Each time you pay one off you will have the motivation to continue working toward becoming Debt Free.

Never sustain any card debt that is beyond your capacity to pay back in a single month. That is to say, keep away from Revolving Debt. The card companies make optimum out of the revolving financial obligation only.

You have to understand that there are particular qualifications that you require to adhere to when looking for a financial obligation relief option. All of them work but you need to get approved for it economically to be able to take full advantage of the benefits of each.

The very first loan kind is called a protected financial obligation loan. What is protected debt? Secured debt is “that category of debt in which a lender is approved a part with the pack of rights to defined home” (Safe debt, n.d.). So if you got in into a protected financial obligation loan and likewise you defaulted within the home loan, the bank would repossess the lorries. This is identified as deficiency judgment. Naturally, you also had the alternative of an utilizing a surety, co-signer, who will take over the payments for anyone who is unable to. Purchases that will require a protected debt loan may include a boat, car, house, second on a home, land, etc.

However you should bear in mind that even here there is no substitute for tough work. Getting more financial obligation to settle another is often not a wise option to make. Charge card are a sure way to monetary worries.

If you are searching more exciting videos about What Happens to Secured Debt in Chapter 11, and debt Free Credit Counseling, Debt Management Plan, Card Debt Legally please signup for newsletter now.