Bankruptcy courts follow an "absolute priority rule" when distributing remaining assets. Common stockholders are at the bottom of this hierarchy: : Banks or lenders with collateral. Unsecured Creditors : Bondholders, suppliers, and employees.
: Investors with hybrid equity-debt holdings. buying stock in bankrupt companies
: Major exchanges like the NYSE or Nasdaq often delist companies that file for bankruptcy. Bankruptcy courts follow an "absolute priority rule" when
Buying stock in companies that have filed for bankruptcy is a high-risk strategy that often results in a total loss of investment. While there is no federal law prohibiting the trading of these securities, the legal priority of claims usually leaves common shareholders with little to nothing. : Investors with hybrid equity-debt holdings
When a company files for bankruptcy, its shares typically continue to trade, but the environment changes significantly:
: Some brokerages, such as Fidelity or Public , may restrict trading in these stocks or require special permissions due to volatility and low liquidity. The "Waterfall" of Payouts
: Usually receive nothing unless all higher-tier creditors are paid in full. Chapter 7 vs. Chapter 11