| Penny stocks that have announced bankruptcy will | | | | The reason this happens is because creditors and |
| drastically fluctuate in price as the bankruptcy | | | | bondholders receive proceeds from the liquidation |
| process moves on. The price fluctuation results from | | | | process before equity holders. Stockholders only |
| investors misunderstanding the bankruptcy process | | | | receive compensation after creditors and bondholders |
| more than anything. When they hear that the | | | | have received the money owed to them. And very |
| company has obtained bankruptcy protection they | | | | often, creditors and bondholders only receive a small |
| assume that it means that the company is now | | | | percentage of what's owed... so it goes without |
| protected against further financial harm. All | | | | saying, there is no money left over for stockholders. |
| bankruptcy protection means is that the company | | | | Many investors falsely think that reorganization |
| cannot be pursued by creditors and that a | | | | means that they will receive stock in the new |
| repayment plan will either be set up or the company | | | | company. They buy the stock since they believe that |
| reorganized. The company can be liquidated if it no | | | | they are buying into a turnaround situation. |
| longer has the cash to operate. Or the bankrupt | | | | Unfortunately, they are mistaken and soon lose their |
| company can simply cease doing business and close | | | | entire investment. |
| up shop. | | | | There is one fortunate situation that does occur for |
| Generally, the reorganization process is never | | | | investors who stay alert in the penny stock |
| favorable to equity shareholders. This means that | | | | marketplace. When companies do go bankrupt, often |
| even if the company announces that it will be | | | | times it doesn't mean death. Companies can and do |
| reorganizing and emerging from bankruptcy equity | | | | emerge out of bankruptcy... and sometimes much |
| shareholders can still lose their entire investment. | | | | stronger. With less debt to service and maybe a new |
| Reorganization shifts ownership of the company into | | | | management team, a second chance can often be |
| the hands of the creditors and bondholders. The | | | | just what a company needs. Many of the best penny |
| equity shareholders are last in line. Sometimes equity | | | | stocks have gone through this process early in their |
| shareholders could receive a small stake in the new | | | | business life only to reward the later stage investors. |
| company. | | | | |