When a company files for Chapter 11, you may get a bit nervous if you own stock in that business. While some businesses may not survive the bankruptcy, not every company will close completely. There is potential your stock will survive, but it will not be the same.
According to the U.S. Securities and Exchange Commission, most companies that file Chapter 11 can no longer meet the listing standards for the major stock exchanges. They may continue to trade on Pink Sheets or OTCBB. There is no federal law that forbids this trading.
Issues during the bankruptcy
The issue with investing in the stock of a company that is filing Chapter 11 is an obvious loss of money. A company may survive the bankruptcy, but you need to realize that bankruptcy law requires its creditors to receive payment before shareholders. If the company does not have enough money, you will not see anything. Even if you do receive payment, dilution is common. You also will not receive any payments during the bankruptcy until the discharge.
After the bankruptcy
After the bankruptcy, the company will have two types of common stock. New stock is something the company issues as part of its repayment plan. The old common stock is what you held prior to the bankruptcy. It will end with a Q in listings. There is a risk that this old stock will become worthless if the company issues new stock. However, you may get the chance to trade old stock for new stock in a reorganized company.
Of course, after a bankruptcy, there is no guarantee the company will be able to bounce back. You should use caution when investing or maintaining these investments.