Bankruptcy Stocks

Investing in stocks that are going into or are emerging from bankruptcy
can be very profitable. Chapter 11 bankruptcy laws allow companies to
be protected from their creditors while the management reorganizes and
goes about the daily business of running the company.

Most investors are scared to death of the word bankruptcy. That's very
understandable. To most people it means total ruination of the financial
viability of any person or business unfortunate enough to be faced with it.
Chapter 11 reorganization rules have put a different face on bankruptcy.

Many well known companies have made the decision to enter chapter 11
protection as a way to weather financial hardships. Chapter 11 rules give
a company some breathing room (time) to reorganize and repair all the
damage that's dragging the company down.

The negative connotations associated with bankruptcy protection can
drive down the share price of the stock to all new lows. Many of these
stocks never recover to the old trading price. Others bounce back within
time, to the old price range and even higher.

Look at it this way. If the company is protected while it carries on with the
reorganization of it's debt and the reduction of it's expense structure, and
if sales and earnings stay steady or increase, then I'd say there's a more
than fair chance the company will survive and become viable once again.

It's not uncommon to see stocks that were once high flyers on wall street
trading at 25 cents to a dollar a share. We're talking about stocks that
were once 20 to 30 bucks a share or more. This does not mean that you
can buy in and expect the price to go back to the old high. It's not likely.

Once the company comes up with a way to pay down it's debt load and
get it's problems resolved, many investors will start start creeping back in
to the stock. Smart investors do their research first. If the reorganization
plan looks solid and achievable the stock will begin to look under priced.

A big company that's in chapter 11 has everything in place to continue
doing business as always (hopefully with more fiscal responsibility).