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Of course, all asset distribution is subject to the bankruptcy court’s discretion, so the above order may not be followed all the time, but it is a good representation of asset distribution during bankruptcy. One constant, however, is the shareholders’ last place in the list. Unfortunately, in most cases, by the time the court gets to the shareholders, there is nothing left to distribute. The shareholders go home empty-handed, with only the consolation of using their investment loss as a tax write-off.

Dividends

If you ever had a savings account or a CD (Certificate of Deposit) at a bank, no doubt you received interest on your money. Sometimes this interest is referred to as dividend. Dividend is regarded as a certain amount of profit shared amongst the investors based on their level of investment. Some companies also pay dividends to their shareholders based on the same concept. In the past, when investing in stocks was not as popular as today and the stocks of even good companies appreciated very slowly, dividends were used to entice investors to buy up shares in the companies and keep them for a long time.

I have mentioned the concept of perceived value in my discussion of stocks several times and how stocks don’t actually have any inherent values. This, while technically true, is not the whole story. Many investors (especially in the past) have used stocks as fixed income financial instruments just like bonds which pay interest. For some this is the inherent value of stocks. Companies would share a part of their profits with their shareholders based on the number of shares each investor holds. Many investors relied on dividend payments as …