Penny Stock Bankruptcies - dummies

By Peter Leeds

When a penny stock company goes bankrupt, its shares typically are eventually cancelled and become worthless. Any remaining assets are sold to pay back the banks and other creditors. But after the bankruptcy announcement, stocks may continue to trade on the stock market for weeks or months, and traders can still buy and sell the shares, which can cause problems for uninformed investors.

During this time, most investors who have not already done so will try to sell their shares. The price of the stock usually falls to a few pennies per share.

Many investors who don’t understand bankruptcy proceedings think that they are getting a good deal when they buy a household name for pennies. They think that when the company emerges from bankruptcy the shares will regain value. What they don’t understand is that the company will cancel its bankrupt shares and issue new stock, which is where any future value will be generated.

Not realizing the guaranteed downside, investors actually buy the bankrupt shares and think that they will do well with them. Don’t fall prey to this fallacy. You will lose all that you invest in a bankrupt company.”

Bankrupt companies are indicated by most stock exchanges with a “Q” on the end of their ticker symbol.