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I've been considering buying Delta Airlines stock - DALRQ.PK. It's a risk since it's in chapter 11 bankruptcy. And after doing some research on it, I might do some short term trading on it, but not any long term trading. There could be possibility in making money on the short term swings. But there's a likelihood that the stock could be worthless when it emerges from bankruptcy.

"Investors should be cautious when buying common stock of companies in Chapter 11 bankruptcy. It is extremely risky and is likely to lead to financial loss. Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company's plan of reorganization will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company's assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution."
SEC - Corporate Bankruptcy

"During Chapter 11 bankruptcy, bondholders stop receiving interest and principal payments, and stockholders stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and worth less. The reorganization plan spells out your rights as an investor and what you can expect to receive, if anything, from the company."
An Overview Of Corporate Bankruptcy

Links:
SEC - Corporate Bankruptcy
An Overview Of Corporate Bankruptcy
Beware of Bankruptcy Stocks
Not far from pink to red ink
When Good Stocks Go Bankrupt
Bankruptcy Stocks
The Empty Truth about Bankruptcy Stocks

Posted: 2007-01-17 21:47:36


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