Learn the stock market › How listed companies work › Lesson 8 of 8
What happens to stock in a bankruptcy?
Owners are last in line
The SEC is direct about it: whichever type of bankruptcy a company files under, its common stock is likely to be worthless. Stock is last in line to receive anything.
A made-up company has $800 million left and debts of $900 million.
| To share out: $800 million | Is owed | Gets |
|---|---|---|
| Lenders with security | 500 | 500 |
| Bondholders and suppliers | 400 | 300 |
| Shareholders | – | 0 |
The money ran out at the last creditors, who got $300 million of their $400 million. Shareholders got $0. A company rarely goes bankrupt with more assets than debts.
The most you can lose as a shareholder is what you put in. You aren't liable for the company's debts.
Chapter 7 and Chapter 11
There are two types of bankruptcy for companies in the US.
- Chapter 7. The company goes out of business. A trustee sells what it has and uses the money to pay its debts.
- Chapter 11. The company keeps running and tries to reorganize, mainly its debts. The managers usually stay, but the court must approve all significant decisions.
Chapter 11 sounds better for owners than it usually is. The company can come out of it healthy while the old shares are still canceled. New shares are issued, but they tend to go to creditors, so old shareholders generally get none.
The stock can keep trading
A stock can go on trading after a bankruptcy filing, and that can make it look like a bargain. It is usually removed from the NYSE or Nasdaq and trades over the counter, and a Q may be added to its symbol. The SEC points out that no federal law stops trading just because a company is bankrupt, so a price doesn't mean there is anything left for owners. What the plan says about the old shares is what matters.
Delisting is something else
Delisted means the stock no longer trades on the exchange. The company can still exist and you still own your share, but it gets much harder to sell, and you may get less information. It can happen after a takeover, because the company wants it, or because it no longer meets the exchange's standards.
After a takeover, owners have usually been paid. After other delistings, you may need to find a buyer over the counter.
Test yourself
A bankrupt company has $500 left and debts of $800. What do shareholders get?
Sources
- US Securities and Exchange Commission, Bankruptcy for a Public Company, read on 5 November 2026.
- US Securities and Exchange Commission, Investor Bulletin: Bankruptcy for a Public Company, read on 5 November 2026.